Evaluating School Districts before Moving: Do Your Homework

Post author By Tom Colgan
Post date December 8, 2023

A Comprehensive Guide to Evaluating & Comparing School Districts

Clothing store jingles, parents and children stocking up on classroom supplies, traffic behind the yellow bus. These telltale signs can only mean one thing: back-to-school season is upon us once again.

Moving to a new location can be an exciting yet daunting task — especially when you have children and their education to consider.

Surprisingly, many first-time homebuyers don’t realize that the quality of a school district and the efficiency with which it utilizes its resources affects homeowners of all ages and situations, regardless of their family composition.

As a new school year approaches, there’s no better time for first-time homebuyers to explore resources that can help evaluate and compare school districts.

In this post, we examine why first-time homebuyers should consider school district quality before making a home-buying decision, share resources available to aid in decision-making, and dive further into the factors to keep in mind as you narrow down options on the journey to homeownership.

Why school district quality matters for first-time homebuyers

When school districts boast a superior reputation, it is no surprise they draw in families who seek a quality education for their children. Prudent first-time homebuyers also know that a school district with a long track of excellence will lead to an increase in their home value over time.

Parents of school age children are typically in the middle of their productive working years and towards the beginning of paying off their mortgages, which increases the local tax revenue appropriated to school districts. With more resources available to a school district, it can hire better teachers and open more supplemental programs, thus creating a cycle of increasing desirability, competition, and in turn, property values.

The most important factor to consider

In many ways, consideration of the local school district is one of the most important factors to consider when making what is often the largest one-time financial investment a person or family makes, the purchase of a home. Long after you buy a home and your children have grown up, a smart homeowner will monitor the health of their local school district because they know how critical it is to the quality of the surrounding neighborhood and their home’s value.

It is important to balance factors discussed in this post with the tax rate of your potential home or neighborhood. While you can pay mortgage payments down over time and restructure your loans, local school district taxes are likely to rise over time. Research the annual history of school tax rate in the school district to get a sense of how much you can expect it to change each year.

Financial implications aside, the quality of the school district plays a pivotal role in shaping children’s academic journey and overall development. This comprehensive guide aims to provide you with insights and strategies to effectively evaluate and compare school districts while making an informed decision for you or your family’s future.

The 3 R’s: School Rankings, Ratings, and Resources

When considering prospective school districts, begin your evaluation by researching local school rankings and ratings through publicly available resources. Websites like Niche.com use multiple factors and weightings to rank and rate schools such as SAT/ACT test scores, parent surveys, teacher salary, expenses per student, cultural diversity statistics, and availability of extracurricular clubs or sports.

Other resources such as the U.S. News & National Report use similar factors, but may weigh the factors differently.

For example, a district measures college readiness by the proportion of a school’s 12th graders who earn Advanced Placement credits or pass International Baccalaureate Exams. This score represents 30% of the overall rating for U.S. News & National Report, whereas Niche.com uses several million parent, student, and teacher surveys to aggregate data on various factors and then assigns varying weights to the factors.

Greatschools.org is an example of a non-profit website that uses a similar methodology to Niche.com, but values student progress as their top factor, and therefore assigns it the highest weight of all the contributing factors. The popular real estate website Zillow happens to pull its school rankings from Greatschools.com.

All of these resources can provide a first-time homebuyer with a starting point in their quest for a school district. But you may need to do a little more homework to complete a comprehensive search.

By understanding the factors that go into school ratings and rankings, first-time homebuyers can decide for themselves the most valuable features of a school district, depending on their individual scenarios.

Next, we outline the most commonly used factors for rating school districts in more detail by explaining how to measure them, why they are important, and limitations for first-time homebuyers to consider.

Factors to consider when evaluating a school district

Ratings and rankings of school districts usually include several, if not all, of the factors below. However, no single media resource is likely to lead to the perfect match for a first-time homebuyer’s situation. To complete a comprehensive search, homebuyers should consider all of these factors and decide what is most important depending on their unique situation.

1. Student performance

Far and away the number one factor used to rate schools is some measure of student performance, which can also take into account student progress and/or achievement, depending on the methodology. While folks often criticize standardized tests for their flaws, they are the most statistically sound measure available to compare student performance.

Nationwide standardized tests such as the SATs and ACTs provide a measure of student achievement that administrators can use to compare performance within schools, across districts/regions, and even between states.

Student performance is also measured using state testing data, often required for state diplomas. In many states, students demonstrate their mastery of curriculum through their performance on state tests, and teachers are graded on the performance of their students.

Another widely considered measure of student performance is local graduation rates. These statistics are accessible through the U.S. Department of Education’s website, as well as individual state education department websites.

Although student performance is in some ways a catch-all for all other factors that lead to the outcomes on these tests, several other factors must be considered when evaluating and comparing school districts.

2. College and career readiness

When evaluating how a school district prepares students for life after school, the term college readiness often applies.

College readiness is typically measured by analyzing the number of college level/advanced placement courses available to students, participation rates within these courses, and outcomes on advanced placement tests. Local districts often highlight where their graduates will be attending college in May or June as high school seniors prepare to graduate.

A related factor to consider is career readiness. Recent initiatives, such as the Strengthening Career and Technical Education for the 21st Century Act of 2018 (Perkins V) have focused on closing the gap between what is learned in the academic classroom and how that is applied to solving real-word problems.

Career and Technical Education (CTE) Programs provide high school students with vocational training in high-demand fields such as construction, automotive technology, information technology, healthcare, and cybersecurity. Oftentimes, students can leave high school with certifications and step right into their desired field. Science, Technology, Engineering, and Math (STEM) curriculums can prepare students from a young age to focus on problem-solving.

Beyond career readiness programs such as CTE, districts may offer apprenticeship programs, work-based learning opportunities, and other partnerships with local businesses. Many districts highlight young alumni on their school websites and profile the work they are doing years after graduation.

3. Teacher and leadership quality

Teacher quality is a complex and multifaceted concept that can be both controversial and challenging to measure accurately. You can use various methods and criteria to assess teacher quality, often taking into consideration both quantitative and qualitative factors. With this in mind, let’s take a look at some common ways to measure teacher quality.

One of the most direct ways to measure teacher quality is through classroom observations. Experienced mentors or administrators observe teachers in action to assess their instructional practices, classroom management, engagement with students, and ability to create an effective learning environment.

A potential limitation of this method, however, is its inherent subjectiveness despite the efforts of educational researchers to employ rubrics and other measurement tools.

Student performance

A more objective measure that is considered when measuring teacher quality, as previously discussed from a different perspective, is student performance on standardized tests and other assessments. Value-added models attempt to measure a teacher’s impact on student learning by comparing their students’ actual performance to expected performance based on various factors.

Qualifications such as degrees, certifications, and years of experience are sometimes used or factored into indicators of teacher quality. While they can be relevant and say something about the consistency of a school, they don’t always provide a complete picture of a teacher’s effectiveness in the classroom.

Professional development

The extent to which teachers engage in ongoing professional development and stay current with educational research and practices is often considered a sign of teacher quality. Most states and districts mandate some level of professional development engagement for teachers, typically with increased intensity in the beginning stages of a teachers’ career. Professional development plans are available on district websites and are often incorporated into publicly available district policies and teacher contracts.

Surveys can be used to measure teacher quality, although they have the potential to run into the problem of subjectivity and bias depending on how questions are structured and who is completing the surveys. Surveys from students attempt to measure a teacher’s ability to engage, motivate, and support students. Peer surveys or assessments aim to provide insights into a teacher’s collaboration, teamwork, and contributions to the school community. Additionally, self-assessments can offer teachers the opportunity to reflect on their own practices and areas for improvement but are often not readily available to potential home-buyers.

The parents’ views

The views of parents, guardians, and other stakeholders within the school community can also contribute to the assessment of teacher quality. School board meetings are open to the public and first-time homebuyers can learn a lot about a school district’s culture by attending and participating in these meetings.

Tangential to teacher quality is the quality of strong building and district leadership. Some districts require prospective school administrators to hold doctorate degrees or advanced certifications and training. A potential homebuyer may want to inquire and explore the turnover rate for a district’s leadership team and compare it to other local districts.

It’s important to note that no single measurement method can fully capture teacher or leadership quality. Often, graders use a combination of these methods to provide a more comprehensive assessment. Moreover, the context in which teachers work, the student population they serve, and the goals of the educational institution all play a role in determining how to evaluate teacher quality.

4. Facilities and resources

School taxes go largely towards a school’s budget and community members have the right to expect that the district uses funding to maintain facilities and keep up with technology within schools. Adequate and well-maintained facilities create a safe and conducive learning environment for students. This is why facilities and resources are part of school district ratings.

First-time homebuyers should explore a district’s facilities through its website and consider asking for a tour to personally assess the cleanliness and comfort within a school building by looking for signs of well-lit and ventilated learning spaces and asking about cleaning and hygiene practices.

Well-equipped science labs, art studios, music rooms, and other specialized spaces can enhance hands-on learning experiences in various subjects for students. Other than noting capital expenditures for these rooms in budgets, they can be difficult for a homebuyer to assess without seeing in person.

When exploring the facilities, it is also important to keep technology in mind, as it is an inseparable component of modern education. Inquire about technology initiatives at potential schools and the level of access that students have to equipment beyond traditional textbooks and class materials.

Schools with appropriate facilities and resources are better able to provide inclusive education for students with special needs. Accessible facilities and tools can promote a more inclusive learning environment. Plus, the law mandates them via the Americans with Disabilities Act. Students with special needs as well as other students may benefit from open counseling spaces or therapist rooms that contain sensory equipment and other supplemental learning resources to help students with disabilities access the curriculum.

Class size

Class size and student-to-teacher ratios are directly related to physical facilities and the resources available to a district. Research suggests that smaller class size leads to positive short-term and long-term student outcomes because students receive additional individualized attention from their teachers. This can be especially important for students with special needs.

When considering facilities and resources, it is important to evaluate the long-term prospects of the school district. Research the district’s history of fiscal health and any plans for future capital improvements. A forward-thinking district is more likely to adapt to changing educational needs.

Overall, quality facilities and resources are essential for creating an environment where both students and teachers can thrive. Adequate funding, strategic planning, and community involvement are key factors to consider when evaluating whether schools have the resources they need to provide a high-quality education.

4. Equity and Cultural Diversity Factors

Schools that prioritize equity provide targeted support to students who may face challenges due to socioeconomic status, language barriers, or disabilities, leading to improved academic outcomes. Inclusion can benefit all students by fostering empathy, communication, acceptance and a sense of community across diverse backgrounds. This improves the school climate for all stakeholders.

Cultural diversity can enrich the learning environment by exposing students to different perspectives, cultures, and ways of thinking. This can lead to increased critical thinking skills and a broader worldview. When agencies rate and rank districts, they measure these factors through a combination of census data and the achievement levels of students from different groups.

Measuring equity requires comprehensive data collection, analysis, and a commitment to making necessary changes to ensure that all students have equal access to a high-quality education. It’s important to use multiple measures and involve culturally diverse stakeholders of students, parents, teachers, and community members in the assessment process.

First-time homebuyers can explore equity initiatives in more depth by carefully analyzing a district’s curriculum and looking for engagement among diverse stakeholders to build trust in the community. When looking at historical data, a potential homebuyer may want to analyze subgroup achievement scores and would ideally see the gap closing. Similarly, one may want to analyze the achievement gap between subgroups when comparing between districts.

You can’t ignore diversity, equity, and inclusion

Equity and cultural diversity can have a profound impact on school districts and play into all of the factors previously discussed. For this reason, first-time homebuyers cannot ignore these crucial factors that folks commonly consider as part of overall school district ratings.

Administrators measure equity in schools through a combination of qualitative and quantitative methods that assess the distribution of resources, opportunities, and outcomes among various student groups. It involves evaluating whether all students, regardless of their background, have access to the same quality of education and opportunities for success.

When measuring equity through the lens of student performance and college/career readiness, school district raters examine standardized test scores, graduation rates, participation in advanced courses, and college enrollment across different racial, ethnic, and socioeconomic subgroups to measure for disparities.

States require districts to measure and report if students with disabilities and students who participate in gifted or talented programs are over or under-represented by subgroups. There are also mandated requirements for students who need additional support to learn and acquire the English language.

Measuring equity and diversity

School leaders need to take equity and diversity into account on several fronts. Disciplinary actions such as suspensions are analyzed across different subgroups for disparities. Leaders work with teachers to gather and assess the level to which students from diverse backgrounds feel safe, respected, and included. School leaders who are charged with developing curriculum examine the material to ensure it reflects the experiences of different subgroups.

School ratings also measure the level of diversity amongst teaching staff and school leadership and analyze hiring processes to check for inequities.

As equity relates facilities and resources, raters analyze how funding, technology, and materials are distributed across schools and classrooms, because students in under-resourced schools may not have the same opportunities as those in more well-funded schools. A first-time homebuyer may want to explore if a district has a family resource center that conducts outreach to parents and community members of different backgrounds.

5. Other factors to consider

While student performance, college/career readiness, teacher/leadership quality, facilities/resources, and measures of equity/diversity tend to make up the bulk of school district ratings and rankings, there are several other, sometimes more difficult to measure, factors first-time homebuyers should consider.

Parent and community involvement contributes to community success, and in turn, a school district’s reputation. First-time homebuyers may want to analyze voter turnout for school board meetings and budget votes and compare with other districts. Another indicator for parent and community involvement could be a robust PTA membership.

Safety is a top priority in modern American schools due to tragic incidents of violence that have played out over the past quarter-century. Analysis of safety and security data can give a first-time homebuyer an idea of a school-district’s safety. Indicators to look for are the number of security guards per school, whether schools partner with local police departments and utilize school resource officers, and whether the school has a safety plan in the event of an emergency. Raters can also check for safety violations and citations issued by local and state authorities, as school districts are subject to state audits. Another indicator related to safety is the presence of an anti-bullying program to reduce violence with a preventative approach.

Transportation and after-school programs

A practical aspect to consider for first-time homebuyers who will have children going through the school district is whether the district provides transportation or offers after-school programs and how this would affect a homeowner’s own work availability and/or daycare needs. Daycare can have a significant effect on a homeowner’s budget.

If a first-time homebuyer has a child who receives special education services, it will be important to contact the district’s special education director or special education chairperson to discuss potential options to ensure the district can meet the student’s needs in the least restrictive environment possible. School districts are generally required to match a student’s special education plan from their previous school district and are also required to identify students with disabilities through the child-find process. Special education programs can vary widely from district to district so this may be an important consideration depending on individual needs.

Finally, a first-time home buyer may want to consider simply reaching out to current parents and community members within prospective school districts to gain anecdotal insights into their experiences. Their perspectives can offer valuable information that might not be readily available through publicly available resources.

Buying a home for the first time? Don’t forget to evaluate local school districts

Choosing the right school district is a multifaceted decision that requires thorough research and evaluation. By considering the factors discussed in this article, you can make an informed choice that aligns with your family’s educational goals and values. .

While first-time homebuyers should carefully consider the quality of local schools before buying a house, that’s just one factor in the decision-making process. To learn more about other things to keep in mind as you narrow down your options, read this: 10 Important Considerations for Buying a House.

Tom Colgan is a certified School Psychologist and Special Education Chairperson working and living in the South Orangetown Central School District in Blauvelt, NY. He holds a Bachelor’s Degree in Psychology from the University of Vermont, a Masters Degree and Advanced Certificate in School Psychology from the State Univeristy of New York at Buffalo, and Certifications in School Building Leadership and School District Leadership from the State University of New York at New Paltz. He is father of three young children, educational researcher, homeowner, and involved community member.

Disclaimer:

The content provided on this website is offered for educational purposes only. While we endeavor to provide accurate and up-to-date information, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability of the content for any purpose. Visitors are advised to consult with qualified experts before making any financial decisions or taking any actions based on the information provided on this website.

1st Time Homebuyer Downpayment FHA Mortgage

FHA Loan Down Payment and Closing Costs

Post author By Josh Schulman
Post date December 1, 2023

Buying a home for the first time is one of the biggest decisions you’ll ever make — which is why it’s so important to learn about FHA loan down payment and closing costs.

After all, becoming a homeowner is a massive investment, and the journey to homeownership includes all kinds of twists and turns — to the point you begin wondering if your life has turned into some sort of M. Night Shyamalan movie.

In addition to finding a house — and, most likely, a real estate agent to work with — you also have to save up for a down payment and secure a loan to cover the rest of the sale price. To do that, you’ll have to weigh your options and find a lender that will work with you to land the home of your dreams.

If this is your first time buying a home, you might not be aware of how much money you need to save up to afford a house. At the same time, you might not be sure about the closing costs you’ll be on the hook for assuming you secure financing and make a deal with the seller.

Since this is the first time you’ll be going through the homebuying process, it’s only natural to be a bit worried and intimidated. Everyone who’s been in your shoes has felt that way.

When you’re buying your first home, you might think that you need to save up mountains of cash for a down payment, but that’s not the case. And while closing costs might seem difficult to wrap your head around, we’re here to help.

Keep reading to learn more about FHA loans, down payments, and closing costs for first-time homebuyers looking to take their slice of the American dream.

What is an FHA loan?

An FHA loan is a mortgage option designed to help folks with lower income or limited credit access achieve homeownership. Offered by the Federal Housing Administration (FHA), a government agency that sits under the Department of Housing and Urban Development (HUD), FHA loans are insured by the federal government. As a result, lenders are encouraged to offer financing to candidates with lower credit profiles who would not be approved for traditional mortgage loans.

FHA loans typically offer much lower down payment requirements. In some cases, you may be able to move into your first home while putting down as little as 3.5% of the purchase price. That’s why these kinds of loans are particularly popular for first-time homebuyers, as well as folks who might not qualify for conventional mortgages due to credit challenges.

In addition to these benefits, FHA loans also offer more flexible eligibility criteria, including higher debt-to-income ratios. At the same time, applicants can secure financing for a home even if they have lower credit scores than they’d need to secure a traditional loan.

How much do you need for an FHA loan down payment?

Most homebuyers who secure traditional loans have to put down anywhere between 10% and 20% of a home’s purchase price to be approved for a mortgage. As a financial tool designed for people with lesser financial means, FHA loans are much more flexible than traditional loans.

In some cases, you may be able to secure a home by putting as little as 3.5% down! On the other end of the spectrum, you might have to put down as much as 10%.

Either way, this lower down payment is a key feature that makes FHA loans attractive to many homebuyers, especially those who may have limited savings or face challenges in meeting the higher down payment demands of conventional loans.

What are FHA loan closing costs?

FHA loan closing costs include various fees and expenses incurred during the homebuying process beyond the down payment. Though FHA loans typically offer lower down payment requirements, borrowers still need to be aware of the other costs they’ll have to pay to close the loan.

Upfront mortgage insurance premium (UFMIP)

The UFMIP, which serves as an insurance premium to protect the lender in case of borrower default, is a significant FHA closing cost. This one-time payment often rolls into the loan amount. While the UFMIP rate is often determined by the loan-to-value ratio, it typically hovers around 1.75% of the base loan amount.

Annual mortgage insurance premium (MIP)

FHA loans often require borrowers to pay an annual MIP, which is an ongoing premium divided into monthly payments. The MIP amount correlates to the loan amount, loan-to-value ratio, and the term of the loan. Over time, it may be possible to remove this expense from your recurring cash outflows if you build up enough equity in the home (e.g., more than 20%).

Loan origination fees

Lenders may charge origination fees to cover loan processing costs. These fees vary on a vendor-by-vendor basis and often include charges for underwriting, document preparation, and application processing.

Appraisal fees

The FHA mandates that a local property appraiser comes by the house you’re considering buying to determine its market value. Borrowers typically cover these costs, which usually range between a couple hundred and a thousand dollars.

Title and escrow fees

Closing costs include charges for title searches, title insurance, and escrow services. These fees ensure a smooth and legally sound transfer of ownership. After all, the last thing you want is to buy a house only to find out the hard way that someone has a claim to the title of your house!

Home inspection fees

While not always required, FHA borrowers may decide to pay for a home inspection to assess a property’s condition. This fee is separate from the appraisal and is paid by the buyer. During the inspection, you may discover that the home you’re considering needs a lot of repairs, which can help you avoid buying a property that turns into a money pit.

Frequently asked questions: FHA loan down payment and closing costs

Now that you have a better idea about down payments and closing costs, let’s answer some of the questions first-time homebuyers have about FHA loans.

What credit score do I need to qualify for an FHA loan?

To qualify for an FHA loan, homebuyers typically need to have credit scores of at least 580 if they want to be eligible for a 3.5% down payment. However, borrowers with credit scores between 500 and 579 may still be able to secure an FHA loan. They just might need to come up with a 10% down payment to qualify.

Individual lenders may have different requirements, and they may consider other factors, including the applicant’s debt-to-income ratio and overall financial profile. Lenders offering FHA loans aim to provide more accessible homeownership opportunities for individuals with diverse financial backgrounds.

While it’s possible to secure a FHA loan with a lower credit score, borrowers with higher credit scores often receive more favorable terms and interest rates. As such, potential FHA loan applicants should check with lenders for the most up-to-date credit score requirements and work to improve their creditworthiness if needed.

How big does my FHA loan down payment have to be?

It depends on your credit score. If you have a score of at least 580, you can qualify for an FHA loan while putting as little as 3.5% down. In the event you’re thinking about buying a house that costs $300,000 and qualify for a 3.5% down payment, you would need to put down $10,500.

If you have a lower credit score but still qualify for an FHA loan with a 10% down payment, you would need to put down $30,000.

In either scenario, you would still be on the hook for closing costs, too.

What’s included in FHA loan closing costs?

FHA closing costs cover a variety of expenses, including the upfront mortgage insurance premium, which is a one-time payment borrowers make to protect the lender. Annual mortgage insurance premiums are ongoing payments that borrowers make every year.

Lenders may also charge origination fees, which cover the costs of processing the FHA loan application. At the same time, borrowers typically cover appraisal fees to assess the property’s value.

On top of this, borrowers are on the hook for title and escrow fees for services like title search and insurance. While not mandatory, some borrowers opt for home inspections, incurring additional fees.

Add it all up, and it’s important to realize that purchasing your first home involves much more than securing a down payment. When closing time comes, you will have to pay a lot of money at closing.

Can I get financing for FHA loan closing costs?

Yes, it’s possible to finance FHA loan closing costs. Borrowers can choose to roll some of the closing costs into the overall loan amount, reducing the upfront out-of-pocket expenses required at the time of closing. This is often referred to as seller concessions or seller-paid closing costs where the seller agrees to contribute towards the buyer’s closing costs, including those associated with the FHA loan.

Additionally, borrowers can explore lender credits, where the lender covers some closing costs in exchange for a higher interest rate. While financing closing costs can provide more flexibility, it’s essential for borrowers to carefully consider the long-term impact, as it may result in a slightly higher overall loan amount of interest payments over the life of the loan.

Conclusion

As you can see, buying a house is no walk in the park. Whether you’re thinking about applying for an FHA loan or a conventional mortgage, it helps to have an expert by your side to walk you through the process and suggest the best path forward for your unique circumstances.

Whatever you decide, here’s to your journey of homeownership. The Home Approach team is rooting for you every step of the way.

Disclaimer:

1st Time Homebuyer Downpayment FHA

10 Tips for First-Time Homebuyers in New Jersey

Post author By Josh Schulman
Post date December 1, 2023

Are you thinking about becoming a first-time homebuyer in New Jersey?

Purchasing your first home is an exciting milestone for anyone, and if you’re considering making New Jersey your home — the state that gave us Bruce Springsteen, Jack Nicholson, and Frank Sinatra — it’s even better.

Even so, buying a house for the first time is an incredibly stressful experience. Not only do you have to fork over tons of cash for a down payment and closing costs, you have to hire a realtor, secure a mortgage, and find a property you’re willing to make a move on.

It’s a tall order any way you slice it.

As Miguel de Cervantes once wrote, being prepared is half the battle. By doing your due diligence and researching everything you can before entering your house-hunting process, it’ll be that much easier to become a first-time homebuyer in New Jersey.

With that in mind, let’s take a look at 10 tips you should keep top of mind as you begin searching for your first home.

10 tips for first-time homebuyers in New Jersey

1. Know your budget

You might stumble across the best property you’ve ever seen. But if you’re not able to afford it, what’s the point?

Know your budget is a foundational mantra you need to say to yourself over and over again. Before becoming a first-time homebuyer in New Jersey, assess your financial situation and see how much money you can afford to spend on a mortgage, property taxes, and homeowner’s insurance each month while also factoring in things like groceries, utility bills, and unforeseen home improvement and repair costs.

Understanding your budget not only helps you determine how much house you can afford, it also prevents you from overcommitting to a property that may make your life more stressful. Taking this crucial step sets the stage for a successful, sustainable homeownership journey — ensuring you can actually afford the first dream home that captivates you.

2. Research New Jersey’s real estate market

If you’re planning to buy a home in the Garden State, you need to research the New Jersey real estate market so you can make an informed decision. The state boasts diverse regions with varying property values and market trends; there’s a difference between Rockleigh and Saddle River and Trenton and Newark, after all.

Analyze home appreciation rates, neighborhood amenities, and proximity to essential services during the decision-making process. Keep an eye on factors that influence the local market. How many job opportunities are in the area? How are the schools? What’s the crime rate? What are the future development plans for the community?

Knowing the answers to these questions empowers first-time homebuyers like you to pinpoint areas that align with their preferences and investment goals. The better you understand the real estate landscape, the easier it will be to make a strategic decision — ensuring a positive experience as a first-time homebuyer in New Jersey.

3. Understand your credit score

Your credit score has a profound impact on your homebuying experience. When you have a high credit score, you’re more likely to be approved for a mortgage, and you’re also more likely to get a better rate. On the flip side, if you have a low score, a lender might reject your application.

If your credit score isn’t where you’d like it to be, you’re not out of luck. Check out these tips for repairing your credit.

Pro tip: You may be able to qualify for an FHA loan even if you have a low credit score. To learn more about FHA loans, read this.

4. Explore first-time homebuyer programs

Unless you have more cash than you know what to do with, you may want to check out first-time homebuyer programs. Many states, including New Jersey, offer programs designed to alleviate financial burdens and help first-time homebuyers move into a house.

For example, the Garden State offers a down payment assistance program that provides eligible first-time homebuyers with up to $15,000 toward a house. First-generation buyers — folks who are the first ones in their families to buy a home — may qualify for an additional $7,000.

These kinds of initiatives can significantly ease the financial burden, making homeownership more attainable for the less fortunate. If you’re interested in such a program, start researching your options, familiarize yourself with the application process, and study the potential benefits. Leveraging these kinds of programs can increase your purchasing power, turning the home of your dreams into a home you can actually afford.

5. Choose the right mortgage

Unless you can cover the cost of the entire house out of your pocket, you will need to secure a mortgage to make a deal possible. As you begin evaluating your options, you’ll quickly realize how many different financial vehicles are at your disposal. From traditional loans to FHA loans and adjustable-rate mortgages to fixed-rate loans, there are a ton of decisions to make here.

It’s a complicated maze to navigate any way you slice it. Rather than trying to figure out the labyrinth on your own, you’re best off talking with a trusted mortgage professional who knows the space inside and out and can help you pick the best loan for your unique situation.

6. Factor in property taxes

The Garden State is great, but it does have the highest property taxes in the country. Still, if you have your sights set on moving to New Jersey, it’s just part of the calculus.

As you continue your search for your first home, you need to factor in property taxes when budgeting for homeownership. Even if you’re able to pay your mortgage off one day, you’ll still have to pay property taxes on an ongoing basis.

Before settling on a house, research the specific property tax rates in your desired location and include them in your budget calculations. Understanding these costs is essential for knowing whether you are really ready to buy a home — or whether you might need to save more before taking the plunge.

7. Work with a local realtor

As a first-time homebuyer, there’s so much about the process that you simply don’t know. That being the case, you’d be wise to partner with a local real estate agent who possesses intimate knowledge of the market, neighborhoods, and property values — giving you access to trusted insights you can use to inform your decision-making.

The right agent will guide you through the complex process of buying a home, offer advice on negotiations, and help you identify properties that align with your preferences and budget. With their expertise in your pocket, the right agent becomes a trusted ally who can streamline the homebuying process and help you find the perfect home in your desired New Jersey community.

8. Consider potential commutes and location

Unless you work from home full-time, you’ll need to research potential commute times and see how they might impact your day-to-day. Assess your desired property’s location and how it aligns with your daily routines and proximity to places like restaurants, grocery stores, hardware stores, doctor’s offices, and gas stations. If you have kids or are planning to, you’ll also want to factor in commuting times to school.

At the end of the day, choosing a location that complements your lifestyle can significantly impact your overall satisfaction with your new home. Prioritize convenience, amenities, and community characteristics to ensure that your chosen location enhances your quality of life and aligns with your long-term needs.

9. Pay for a home inspection

While you might be tempted to skip over a home inspection, that’s not a smart thing to do. Think of inspection costs as a fee you pay to either confirm you’re making a shrewd decision or show you why you absolutely shouldn’t move forward with the deal.

Home inspections provide a comprehensive assessment of the property’s condition, uncovering potential issues that might not be apparent to the untrained eye. By paying for a professional inspection, you can gain valuable insights into the home’s structural integrity, systems, and potential maintenance needs. This helps you make an informed decision — and avoid making unexpected repairs right after you move in.

10. Don’t overlook closing costs

Title insurance, appraisal costs, loan origination fees, oh my.

It’s easy for first-time homebuyers to overlook closing costs because they’ve never been through the process before. Generally speaking, closing costs hover between 2% and 5% of a home’s purchase price.

Bottom line? You need to be prepared to cover these expenses if you want to experience a smooth and orderly home-buying process.

FAQs: First-time homebuyer NJ

Here are the most common questions first-time homebuyers in New Jersey are asking.

What if I don’t have enough money saved for a down payment?

If you don’t have enough money saved for a down payment, you should either try to figure out how to increase your income or explore alternative loan options, including FHA loans. While you’re at it, research down payment assistance programs and grants available in your area. In some circumstances, you may want to consider negotiating with the seller for concessions or explore creative financing solutions.

Should I worry about high interest rates?

High interest rates can significantly impact your mortgage payments. Unfortunately, you have no control over them. Monitor market trends, maintain a strong credit score, and consider fixed-rate mortgages for stability. If you do lock in to a higher interest rate, you may be able to refinance in the future when rates fall back down.

How do I find the best mortgage?

To find the best mortgage, begin conversations with multiple lenders, considering interest rates, loan terms, and fees. Evaluate your financial goals, risk tolerance, and long-term plans. Unless you want to navigate this complex process on your own, consider seeking guidance from mortgage professionals who can help you find the best product for your situation.

Conclusion

Buying your first home is incredibly exciting. But at the same time, it can also be quite intimidating.

Luckily, you don’t have to go through the process on your own. By enlisting the help of professional real estate agents, home inspectors, and mortgage professionals, your path to homeownership becomes that much clearer.

New Jersey is calling your name, so what are you waiting for? To get the ball rolling, connect with a professional today.

Disclaimer:

1st Time Homebuyer Downpayment FHA Guides

FHA Loan Requirements Florida: Everything You Need to Know

Post author By Josh Schulman
Post date November 18, 2023

Are you a Florida resident thinking about buying a home? An FHA loan may be just the financial vehicle you need.

Homeownership is synonymous with the American Dream. In fact, three-quarters of Americans say that owning a home is a bigger sign of prosperity than starting a family, having a great career, or graduating from a prestigious college.

Yet in our era of persistent inflation and high interest rates, many Americans may feel as though homeownership is out of reach. This feeling is even more pronounced in folks who have low credit scores or feel as though they’ll never be able to cobble together enough funds for a down payment.

If you’re looking to buy a home in Florida but are worried about how you might be able to afford it, you’ve come to the right place. Keep reading to learn more about FHA loans, the pros and cons of FHA loans, and why you should work with a broker to secure an FHA mortgage on your journey to homeownership.

What is an FHA loan?

An FHA loan is a type of mortgage backed by the Federal Housing Administration, an agency that operates under the Department of Housing and Urban Development. The loans are designed to make homeownership more accessible to individuals who may have a harder time qualifying for conventional mortgages. Since the loans are backed by the government, lenders are more likely to approve FHA loans for borrowers who might not qualify for more traditional mortgages.

FHA loans: Pros and cons

While FHA loans can help financially disadvantaged individuals become homeowners, like every financial vehicle they have their share of downsides. Before you start shopping for properties in Florida, it’s important to understand the pros and cons of FHA loans to determine whether they’re right for you.

Pro #1: Low down payment

FHA loans are appealing because first-time homebuyers can use them to buy homes even if they don’t have tons of cash for a massive down payment or have a suboptimal credit history. By securing an FHA loan, homebuyers in Florida can buy a property by putting as little as 3.5% down, so long as they meet credit score requirements. As a result, homeownership becomes more accessible, and buyers can enter the housing market sooner without incurring a massive financial burden.

Pro #2: Relaxed credit score requirements

FHA loans are more forgiving of lower credit scores than conventional loans. As a result, borrowers with less-than-perfect credit histories can still buy the home of their dreams in Florida. If your credit score is at least 580, you may be able to secure a home by putting 3.5% down.

If your credit score is lower than 580, you’re not entirely out of luck. You may still qualify for an FHA loan if your credit score is between 500 and 579, providing you’re able to put 10% down upfront.

Pro #3: Flexible debt-to-income ratio

Borrowers can qualify for FHA loans with higher debt-to-income (DTI) ratios, enabling would-be homeowners to still close on a house in Florida even if they have existing debt (e.g., credit card debt and student loans). This flexibility recognizes that individuals may have varying financial obligations, and enables them to qualify for a mortgage more easily.

Pro #4: Government-backed loans

Since FHA loans are backed by the government, lenders can approve loans for borrowers with less conventional financial profiles. As a result, FHA loans help increase access to mortgage financing, helping folks who might not qualify for traditional mortgages to still become homeowners in Florida.

Con #1: Additional costs

While FHA loans let borrowers buy houses while putting down less money, borrowers are on the hook for additional expenses they wouldn’t have to pay by taking a more conventional route. For example, FHA loans require both an upfront and annual mortgage insurance premium (MIP), which increases the overall cost of the loan.

While MIP makes homeownership possible with a low down payment, it adds an ongoing expense that borrowers need to cover each year. Since homeownership comes with tons of unexpected expenses — you never know when your dishwasher might fail — these costs can make it harder for homeowners to cover costs associated with things like home repairs and maintenance.

Con #2: Complex approval process

The approval process for FHA loans can be more involved than conventional loans. Unfortunately, this complexity may extend the timeline for loan approval and closing, potentially causing delays in the home-buying process. Avoid this fate by getting preapproved before you begin the house-hunting process in earnest.

Con #3: Lower loan limits

FHA loan limits vary by location and may restrict borrowers in high-cost areas. Buyers seeking more expensive homes may find FHA loan limits insufficient. As a result, they may have to seek alternative financing methods or temper their expectations when it comes to what kind of house they think they can afford.

Con #4: Property standards and appraisal challenges

FHA loans have specific property standards, and the appraisal process can be stringent. Properties must meet safety and livability requirements, potentially limiting choices and requiring additional steps to address property conditions.

In other words, just because you secure an FHA loan doesn’t mean you can have your pick of any house on the market. The lender will have to approve your choice.

What are the FHA loan requirements in Florida?

Many folks who become homeowners in Florida use FHA loans to finance their properties. In fact, together, Florida, Texas, and California accounted for 28.64% of all FHA loans in the United States issued in 2020.

If you’re thinking about applying for a mortgage, here are the FHA loan requirements Florida resident need to meet to be approved.

Credit score

If you’re looking to put down 3.5%, you’ll need a credit score of at least 580. You may be able to qualify for an FHA loan if your credit score is at least 500, but you’ll have to put down more money upfront — usually 10%.

Down payment

Whether you pay 3.5% or 10%, you’re going to need to put some significant sum of money down when you buy your new house in Florida. Down payment funds can come from savings, gifts from friends and family, windfalls, and even grants from state and local down payment assistance programs.

Debt-to-income ratio

While FHA loans allow for a higher DTI ratio than conventional loans, you’ll still need to make sure yours is no higher than 57%. Realistically, you should aim for something closer to 40% — or even lower.

Proof of employment

Lenders will also want to see you prove that you have a steady employment history and a reliable source of income. When applying for an FHA loan, lenders will want to review income documentation, like pay stubs, tax returns, and W-2 forms, along with bank statements and other financial records.

Residency and legal status

FHA loans are only available to U.S. citizens, lawful permanent residents, and eligible non-citizens. So, you’ll have to make sure you legally qualify for an FHA loan.

This list isn’t exhaustive, but it covers the main points. Suffice it to say that applying for an FHA loan — or any loan for that matter — is never a walk in the park. That being the case, you’re best off partnering with a mortgage broker who lives and breathes FHA loans and can walk you through the process, explaining all your options as only a trusted advisor can.

Why should I work with an FHA loan broker?

If you’re like most people, buying a house is one of the biggest decisions you’ll make in your life. While it’s certainly possible to navigate the complex process on your own, you’re much better off joining forces with an expert who knows FHA loans like the back of their hand. While it may be your first time buying a house, FHA loan brokers have gone through the process countless times and can provide priceless advice as you move closer to landing your dream house.

FHA loan brokers can offer several advantages along your journey to securing a mortgage.

Expertise and knowledge.

Brokers specialize in FHA loans and are well-versed in the intricacies of the program. Their expertise can be invaluable in guiding you through the application process and ensuring compliance with FHA requirements.

Access to multiple lenders.

Brokers often have relationships with multiple lenders, including those that offer FHA loans. This allows them to shop around for the best terms and rates on your behalf, potentially saving you money over the life of the loan.

Guidance on eligibility.

The right broker can assess your financial situation and advise you on your eligibility. They can help you understand the specific requirements — such as credit score thresholds and DTI ratios — and guide you toward improving your eligibility.

A fast, streamlined process.

Since they’ve gone through the process countless times, brokers can also expedite your FHA loan experience. They are familiar with all the paperwork and documentation required, reducing the likelihood of errors or delays in the approval process.

Personalized advice.

Brokers provide personalized advice tailored to your unique financial situation. They can offer insights into how FHA loans align with your homeownership goals and recommend the most suitable options for your needs.

Negotiation skills.

Whether it’s negotiating interest rates or other terms, having a broker in your corner can potentially lead to more favorable loan terms — saving you money over the life of the loan.

As you can see, working with a broker makes tons of sense. If you’re interested in buying a house in Florida using an FHA loan to finance the property, connect with an expert for free today to get the ball rolling

Disclaimer:

1st Time Homebuyer Downpayment FHA Guides

FHA Loan Requirements PA: Mistakes to Avoid

Post author By Josh Schulman
Post date November 17, 2023

If you’re thinking about buying a home in Pennsylvania but are worried that you may be unable to secure a conventional mortgage, an FHA loan may be just what you need to land your dream property.

Since buying a home is one of the biggest decisions you will ever make, it’s important to do your due diligence and research all of the financing options available to see which one is the best fit for your unique circumstances.

Keep reading to learn more about what an FHA loan is, the benefits of FHA loans, FHA loan requirements for PA homeowners, common FHA loan mistakes to avoid, and first-time homebuyer grants in PA that can help you move into your new home even faster.

What is an FHA loan?

An FHA loan is a mortgage insured by the Federal Housing Administration, an agency within the U.S. Department of Housing and Urban Development. Very simply, FHA loans are designed to make homeownership more accessible, especially for folks who may face challenges when it comes to qualifying for conventional mortgages.

Whether you’re a first-time homebuyer, have limited savings for a down payment, or wish your credit history was better, FHA loans can be a good option for buying a home in Pennsylvania.

What are the benefits of an FHA loan?

In 2020, the FHA signed off on more than 1.3 home mortgages, 83.1% of them for first-time homebuyers. FHA loans are popular because homes are expensive and this financial vehicle makes homeownership easier to achieve for the average American.

With that in mind, let’s take a look at some of the key benefits that come with securing an FHA loan on your path to homeownership.

1. Low down payment

FHA loans enable Pennsylvania homebuyers to close on a home with a relatively low down payment. While conventional mortgages might require buyers to put down 10% or even 20%, you can use an FHA loan to buy a house by putting just 3.5% down. In other words, FHA loans make it much easier to save for a down payment.

Need help cobbling together a down payment? You may want to check out down payment assistance programs available through the Pennsylvania Housing Finance Agency (PHFA).

2. Flexible credit score requirements

To qualify for a conventional mortgage, homeowners typically need a credit score of 620 or higher. FHA loans are more lenient when it comes to credit scores; you can secure a house for 3.5% down if your credit score is at least 580.

Is your score lower than that? You’re not entirely out of luck. Borrowers can still secure FHA loans with credit scores between 500 and 579. They just require putting 10% down.

3. Higher debt-to-income ratios

FHA loans typically allow for more flexibility when it comes to debt-to-income (DTI) ratios — or the percentage of a borrower’s gross monthly income that goes toward paying debts. In most cases, conventional mortgages have stricter DTI requirements. FHA loans are designed to accommodate borrowers with higher levels of existing debt, which makes homeownership easier to achieve.

4. Government-backed mortgages

Since FHA loans are insured by the government, lenders take on less risk when they agree to finance this type of mortgage. As a result, lenders are more likely to sign off on loans to borrowers who might not qualify for conventional financing.

FHA loan requirements PA: What you need to know

While FHA loans are easier to secure than conventional loans, borrowers will still have to meet specific requirements to qualify.

Such requirements include:

A credit score of at least 580 if you’re looking to only put down 3.5%.

If your score is lower than 580, you can still qualify for an FHA loan. You may just have to put down a larger down payment upfront. Alternatively, if you’re planning on buying a house in Pennsylvania but can afford to wait a bit, you can take proactive steps to improve your credit score, get it over 580, and qualify for the 3.5% option.

Enough cash to cover at least 3.5% of the house’s price.

These funds can come from your own savings, gifts from family members or friends, or even a state or local down payment assistance program.

A debt-to-income ratio of 57% or less.

While FHA loans allow for higher DTI ratios than conventional loans, you will still need to demonstrate your ability to afford mortgage payments each month. In some instances, lenders may make exceptions due to each borrower’s unique circumstances. If you’re worried that your DTI ratio is too high, you can either start looking for more affordable properties or try to earn more income by taking on a second job or starting a side hustle.

Proof of employment and income.

Borrowers need to be able to demonstrate that they have a steady employment history and a reliable source of income. To do this, lenders will ask for all sorts of documentation, including pay stubs, W-2 forms, tax returns, and bank statements. Using these documents, lenders assess the borrower’s ability to repay.

Mortgage insurance premiums (MIP).

FHA loans require both an upfront mortgage insurance premium paid at closing and an annual mortgage insurance premium paid over the life of the loan. Before signing any contracts, check with your lender to determine how you may be able to stop paying these kinds of premiums (e.g., buying refinancing into a conventional loan once you’ve reached 20% equity down the line).

FHA loans are available to U.S. citizens, lawful permanent residents, and eligible non-citizens, and they can only be used to buy a primary residence.

FHA loans: Mistakes to avoid

While FHA loans can accelerate your journey to homeownership in Pennsylvania, this method of home financing is not without its challenges. As you move closer to landing your first dream home, keep these pitfalls in mind to keep the process humming along.

Neglecting your credit score

While FHA loans may be more flexible than conventional loans, a low credit score can still affect your eligibility and the terms of the loan (e.g., down payments). By checking your credit score early in the process and taking proactive steps to improve it, you can ensure you have a solid score by the time you’re ready to secure an FHA mortgage.

Forgetting to budget for MIP

MIP is a mandatory cost for FHA loans, and not accounting for it can lead to financial strain. Avoid headaches down the line by factoring MIP into your budget and understanding how it affects your overall housing costs. Talk to your lender to make sure you understand the specific MIP requirements for the type of FHA loan you choose — and how you might be able to stop paying MIP at some point in the future.

Ignoring your DTI ratio

You might have a great credit score and enough cash to cover a down payment. But if your DTI ratio is too high, you may not be able to qualify for an FHA loan. While FHA loans may allow higher ratios than conventional loans, a high DTI can still impact loan approval. That being the case, you’re best off calculating your DTI ratio early in the process. If it’s too high, work on reducing debt (e.g., credit card debt) or increasing your income to improve your financial profile.

Skipping the pre-approval process

We get it: As someone who’s about to buy a house in Pennsylvania, you’re chomping at the bit. But don’t let your eagerness get the better of you. Without going through the mortgage pre-approval process, you may waste time looking at homes that are outside your budget or miss out on an opportunity because your loan doesn’t come through on time.

There’s an easy fix: Secure mortgage pre-approval for an FHA loan before starting your home search. This provides a clear understanding of your budget and strengthens your position as a buyer because sellers know you’re serious.

Underestimating closing costs

If you overlook the impact of closing costs, you might be caught off guard when you’re ready to finally move into your new home and sign the documentation. Closing costs for an FHA loan can include appraisal fees, credit report fees, title search fees, and other expenditures. Avoid headaches down the line by obtaining a detailed estimate of closing costs from your lender early in the process. Budget for these costs ahead of time to ensure you have the funds you need to close on schedule.

First-time homebuyer grants PA

Need a little extra help when it comes to buying your Pennsylvania dream home? There are several first-time homebuyer grants PA residents can take advantage of courtesy of the PFHA. Some of these grants include:

The Keystone Forgivable in Ten Years Loan Program (K-FIT), which enables you to borrow up to 5% of the home’s market or appraised value, whichever is less. If you stay put, the state forgives 10% of the loan each year. If you move, you’ll have to pay 90% of what you borrowed. To qualify for this grant, you need a credit score of at least 660 and less than $50,000 in assets.

The Keystone Advantage Assistance Loan Program, which provides a zero-interest second mortgage that you’ll have to repay over a decade. Under this program, you can borrow up to 4% of your home’s value, not to exceed $6,000.

The HOMEstead Down Payment and Closing Cost Assistance Loan, which enables you to borrow up to $10,000 with no interest. Like the K-FIT program, the state forgives HOMEstead loans at a clip of 20% each year; if you stay in your home for five years, you won’t have to repay a penny.

Ready to buy your first home in Pennsylvania?

Buying a home for the first time can be an intimidating experience — so much so that it might even seem entirely out of reach.

Thanks to financial vehicles like FHA loans and first-time homebuyer grants, however, PA residents can enter the process with more confidence.

The journey to homeownership is complex and filled with surprises. To ensure the best results, you shouldn’t embark on that journey on your own.

When you’re ready to learn more about FHA loan requirements for PA homebuyers, reach out to an expert who can walk you through the process and tell you exactly what to expect.

Claim your free consultation today.

Disclaimer:

Homeowner Real Estate

For Sale By Owner: Everything You Need to Know

Post author By Josh Schulman
Post date August 17, 2023

In most real estate transactions, homebuyers and sellers hire real estate agents to represent them. In many cases, buyers and sellers never interact with each other; the agents work as intermediaries and do all the negotiation.

Every now and again, however, you may run into the acronym FSBO on your house hunt. This means “for sale by owner” — a seemingly minor detail that impacts the sale significantly.

If you’re wondering what FSBO is, you’ve come to the right. This article offers a complete overview of FSBO, including:

What is FSBO in real estate?
MLS listing vs. FSBO
Why homeowners sometimes choose FSBO
Considerations to make during an FSBO transaction
How home buyers can potentially benefit from FSBO deals
The challenges of FSBO
Frequently asked questions about FSBO

What is FSBO in real estate?

FSBO refers to a method of selling real estate where the owner handles the entire selling process end-to-end without using a real estate broker. Instead, they’re responsible for all of the tasks associated with selling a house, including marketing the property, taking photos, making yard signs, listing it, negotiating with buyers, and closing the deal.

All kinds of properties — both single-family and multi-family homes, including standalone houses, condos, apartments, and townhouses — can be sold directly by the owner. However, the vast majority of real estate deals are not made this way.

In fact, the latest data from the National Association of Retailers (NAR) has FSBOs accounting for just 10% of home sales, with the typical FSBO home selling for $225,000 versus $330,000 with an agent.

MLS listing vs. FSBO

When a homeowner decides to sell their property with the help of a broker or real estate agent, the real estate company typically lists the property in a multiple listing service (MLS) database. There are numerous MLS databases throughout different areas and regions, and each is a network of new listings designed to help real estate professionals.

When a property goes into an MLS database, the listing typically includes details like square feet (sqft), location, features, and asking price. This allows other real estate agents to access and share information with their clients, resulting in greater market exposure.

In an FSBO transaction, the property owner assumes the full responsibility of marketing and selling the property to potential buyers. Since they don’t use a real estate agent, FSBO properties typically do not appear in an MLS.

Instead, property owners usually explore alternative means of advertising FSBO properties like social media, classified ads, open houses, and online platforms like Zillow, Redfin, or Trulia. That said, some MLS systems do offer limited services to FSBO sellers in exchange for a listing fee.

Why homeowners sometimes choose FSBO

Any time you explore a new home that’s for sale, you should always think about why the person is selling their house and what their selling strategy might be. This is especially important with an FSBO property, which deviates from the traditional selling process.

With that in mind, let’s examine some common reasons a homeowner may choose to market their property FSBO instead of using an agent.

Save money

One of the top reasons why homeowners choose FSBO is to save money. In most transactions, real estate brokers ask for 5% to 6% of the sale price, with half going to the listing agent and the other half going to the agent representing the buyer. By selling the property themselves, homeowners can avoid paying a real estate commission and pocket the savings instead.

If a person opts to sell their property FSBO to pinch pennies, it may indicate they are a tough negotiator and looking for the best possible deal. In such cases, you should go in ready for a potential price battle and round up as much comp data as you can.

Maintain control over the sales process

Working with a selling agent requires giving up significant control over the selling process. Naturally, not all sellers are comfortable with this.

By selling a property FSBO, the homeowner can set the listing price, retain control over the property’s appearance, and negotiate directly with buyers — all without relying on an agent.

Control the market

Sometimes homeowners want to avoid exposing their property to the general market and target their advertising to a specific group of buyers. FSBO helps reach potential buyers without listing the property on an MLS and attracting the attention of every real estate agent under the sun.

Homes for sale by owner: Considerations to make

In a traditional real estate transaction, buyers often leave the heavy lifting to their real estate agents. But when buying a property for sale by the owner, the process requires more diligence. In addition to securing a mortgage, here are a few other factors you need to keep in mind when you’re considering buying a FSBO property.

Pricing

First things first: Research the market and ensure the price is fair and in line with similar properties in the area. Here, it helps to get an appraisal or consult with a real estate agent if possible. According to the NAR, 16% of FSBO sellers struggle with getting the price right.

Property inspections

Always insist on a comprehensive home inspection before agreeing to any purchase. This holds true regardless of whether you are completing an FSBO or traditional sale. Asking for an assessment can help reveal potential issues that a seller may be trying to hide — like malfunctioning wells, septic systems that are past their useful lives, or structural damage.

Negotiations

Sellers often try to avoid dealing with real estate agents altogether when putting their houses on the market as FSBO. As such, you may have to get in the trenches and negotiate directly with the seller about things like price, contingencies, and repairs. Before diving in, brush up on your real estate negotiation tactics.

Escrow and closing

In an FSBO transaction, the roles of escrow and closing are similar to a traditional sale. However, there are some key differences to be aware of.

In an FSBO sale, the seller and buyer must decide how to handle the escrow process. The two parties can use a third-party escrow company or attorney to facilitate this unless they want to handle it themselves.

What’s more, during closing the seller is responsible for coordinating all closing details — like scheduling the closing date, preparing all of the necessary documents, receiving signatures, and addressing last-minute concerns. It’s also necessary to meet in person and finalize the sale.

Unpredictability

All real estate transactions have a degree of unpredictability to them. When you remove professional real estate agents from the process, things can get a little more chaotic.

To switch to the first person for a second, when I was buying my first house, I was eying a property that was a FSBO listing. After some tense negotiations, we finally had a deal. The sellers were a married couple; the house was in the wife’s name, but the husband didn’t want to sell.

Then things got weird. Even though the listing included a commission being paid to the buyer’s agent, the sellers started trying to weasel out of that clause. After more back and forth, the seller ultimately withdrew from the deal. It was an emotional rollercoaster and a waste of time.

When two real estate agents are involved in a deal, they work together to bring it to the finish line expediently. There’s less likelihood of funny business.

The benefits of FSBO for buyers

While people often think of FSBO transactions as being beneficial to the seller, there are some advantages for savvy buyers who can navigate the process and execute a transaction.

Less competition

From a homebuyer’s perspective, an FSBO transaction means less competition because the property is usually not included in MLS listings. With less competition comes greater negotiation power, which means you could wind up with a better deal.

Personal connection

When dealing directly with a buyer, you can connect more personally. This can establish trust and understanding and help reach a price that both parties can agree to.

To illustrate, suppose you need a family home in a safe neighborhood with a decent school system. You discover a seller who wants to see their home go to a family that will appreciate the property and put it to good use. In this case, forming a connection with the buyer could help facilitate an easier sale.

Direct negotiation

In an FSBO transaction, you or your real estate agent can negotiate directly with the seller. This can potentially lead to more flexible and personalized negotiations without someone standing in the way and potentially complicating the process.

The challenges of FSBO

Despite offering a more direct and intimate buying experience, FSBO has several challenges and drawbacks for buyers. Here are a few reasons why buyers tend to struggle when they buy directly from an owner.

Negotiating without third-party representation

The negotiation process goes more smoothly when two licensed real estate professionals with experience closing deals are the ones doing it. In FSBO deals, the buyer may be disadvantaged if the seller has more knowledge or experience negotiating.

Some buyers may also be uneasy about working with sellers without a neutral third party. This can create trust issues, making it harder to reach a deal. Sellers also may not provide as accurate or trustworthy disclosures. Unfortunately, verifying disclosures on your own may be challenging.

Having less market information

Real estate agents have deeper access to market data and local economic conditions than you do. That being the case, it’s typically much more challenging for buyers to determine a property’s actual value.

Buyers who choose to move forward with FSBO transactions should consider going in with as much data as possible. Even better, consult with local authorities for information about the property and surrounding area.

Handling emotional attachment

Selling a home can be an emotional experience, making it hard to negotiate from a business standpoint. It’s common for sellers to throw curveballs into the equation by changing prices or terms, being flakey, and otherwise attempting to back out of deals.

FAQs for FSBO homes

Thinking about pursuing a FSBO property. Here are some answers to commonly asked questions.

Are foreclosures different from FSBO transactions?

A foreclosure is a different type of transaction. It occurs a homeowner defaults on their mortgage payments and the lender takes legal action to repossess the property and recover their outstanding debt. While a homeowner may choose an FSBO sale to save money, it does not necessarily mean they are financially distressed or in danger of foreclosure.

How does an FSBO impact the buyer’s agent?

As a buyer, you can still work with an agent when purchasing an FSBO property. However, it’s up to the property owner to decide whether to negotiate with a real estate agent and pay them a commission.

If you decide to use a buyer’s agent during an FSBO transaction, ensuring that the seller will agree to an agent commission ahead of time is critical. Sellers often try to get out of paying buying agents, leading to disputes and legal issues.

Do mortgage lenders accept FSBO transactions?

Lenders do accept FSBO transactions. As such, you’ll still have to go through the normal mortgage application process.

Without a real estate agent, the lender will most likely require an independent appraisal to ensure the property’s value and sale price are accurate before issuing a loan. You can also expect the lender to complete a title search, review the contract and other documentation, and verify proof of funds for the down payment and closing costs. The lender may also need to work with the seller to get documentation and complete the mortgage process.

What consumer protection services are available to buyers during an FSBO sale?

All purchasers are entitled to various consumer protections to ensure a fair and secure homebuying process. This includes the right to review property disclosures, inspection contingencies, financing contingencies, and the right to conduct a title search.

In addition, buyers can hire a real estate attorney to review the purchase contract and use a neutral third-party escrow service to hold funds. FSBO sellers must also comply with state and federal consumer protection laws, and fair housing laws which prohibit discrimination based on race, color, sex, religion, disability, national origin, or familial status.

What is a flat fee MLS listing?

A flat fee MLS listing is a real estate service that allows homeowners to list their properties in an MLS database for a one-time, flat fee instead of paying the traditional commission fees to realtors.

The bottom line: Should you buy an FSBO house for sale?

The vast majority of real estate transactions take place between licensed real estate agents. But during your search, you may find a dream house listing in a top market like New York, Chicago, or California with an FSBO acronym attached to it. Should that happen, only you can decide whether you want to move forward with this type of process.

While FSBO transactions are more challenging, they can be a walk in the park if both sides come to the table organized and ready to make a deal. It all depends on the property, the seller’s mindset and strategy, and the buyer’s willingness to negotiate and ask the right questions.

We get it: Buying a property is tricky, and there are countless pitfalls along the way. While research can help, sometimes sites like Realtor.com don’t tell the full story about a property.

Before you start searching for your first property, we recommend checking out our free guide for first-time homebuyers.

Disclaimer:

Homeowner Real Estate

Is Well Water Safe to Drink?

Post author By Josh Schulman
Post date August 17, 2023

When you’re buying a home, it’s easy to get caught up in focusing on things like a property’s appearance, price, and location. But homebuyers also need to carefully consider other factors, like the water you’ll have access to.

Unless you’re a robot or an advanced artificial intelligence algorithm, you need water to survive. After all, water permeates almost every part of our lives. We use it for drinking, cooking, cleaning, growing plants and vegetables, and countless other tasks — which is why it’s critical to have access to clean, affordable, and reliable tap water that comes out of a faucet at your new place.

When you’re buying a new home, you have the choice between whether you’ll be drinking and cleaning with well water or city water. Read on to learn what well water is, how it works, its pros and cons, and important safety considerations.

What is well water?

Well water originates from a deep hole or shaft beneath the surface of the ground. It can come from different underground sources like aquifers, where water sits in permeable rock formations or porous materials such as sand or gravel.

Not everyone in the United States has access to well water. Roughly 43 million people — 15% of the U.S. population — use private domestic wells as their source of drinking water. In most cases, you’ll find well water in rural or suburban areas that lack municipal infrastructure.

While it’s possible to install a well in an urban environment, you’ll likely need to obtain permits, licensing, and inspections to install one.

What is city water?

City water comes from a municipal water system. Such systems contain water that originates from local sources like lakes, rivers, underground wells, and reservoirs. The sources that contribute to each city’s water system vary by location.

Unlike well water, city water goes through several rounds of treatment and sanitation to ensure it’s safe for consumption and other uses.

Some examples include:

Sedimentation, where water sits in large basins, heavier particles sink to the bottom, and clean water rises to the top.
Filtration, which involves passing water through sand, gravel, and carbon filters to remove impurities.
Disinfection, the process of using chlorine and chloramine to kill harmful microorganisms like viruses, bacteria, and parasites.
pH adjustment, which involves adjusting the pH level of the water to optimize taste and reduce corrosion in the distribution system.

When using public water systems, homeowners have little to no direct say as to how the city stores, treats, and transports water. So, if you’re considering purchasing a home that uses city water, you’ll want to research local water and infrastructure quality to ensure it’s safe. You may also need to invest in private filtration systems to purify the water before use.

For guidance, the U.S. Environmental Protection Agency (EPA) offers abundant water data and reports that you can use to find information about water quality in your community.

How does a well work?

Unlike a municipal water system, a well generates water on-site — meaning it’s a private, decentralized mechanism and the property of the homeowner.

A well contains several mechanisms, including:

Casing to ensure structural integrity and prevent the well from collapsing; well casing may include steel or PVC.
Screens, which allow water to enter the well while keeping out debris and larger particles.
Pumps that collect water and bring it to the surface; the two most common types of pumps are submersible pumps and jet pumps, which rest above ground.
Holding tanks — or cisterns — which store water before transporting it to the house for drinking, irrigation, or other household needs.

The depth of the well depends on the location of the underground aquifer or water table, or the point where the ground becomes saturated with water.

Three types of wells to know about

There are several types of wells in the U.S. which can vary depending on the region and geology. As you continue the homebuying process, it’s important to have some familiarity with the most common kinds of wells.

1. Drilled wells

Drilled wells — which are built using a drilling rig — are the most common type of well for U.S. homes. They reach deep into the earth to access groundwater. Depending on the location, drilled wells can run from a few tens of feet to hundreds or even thousands of feet.

2. Dug wells

Dug wells are shallow wells that are excavated either by hand or machine. They typically contain a wall of stones, bricks, concrete, or tiles. Most dug wells are less than 30 feet deep.

3. Driven wells

Driven wells use pipes and casing to reach water tables. These are common in areas with sandy or loose soil and in areas with shallow water supplies.

Some less common wells you may want to research a bit include mechanically bored wells, hand-dug wells, and jetted wells, which use high-pressure water or air to force the casing into the ground.

What are the pros and cons of having private well water?

The pros

Well water comes directly from underground sources like aquifers or water tables. Because of this, wells are often free from additives like chlorine and fluoride.
Since well water doesn’t usually rely on chemicals, it may have a fresher and more natural taste than city water — especially if you use an additional filtration system.
Well water systems often use little to no energy. As a result, they have a lower environmental impact than large-scale water treatment and distribution systems.

With proper management and maintenance, wells can be sustainable water sources. However, monitoring your well and practicing responsible water use is essential for ensuring sustainability. This is especially important in areas with water scarcity and high demand.
Using a well means your home won’t rely on a municipal water system. As a result, you can continue receiving water during local emergencies and outages — as long as your property and well infrastructure remain intact, that is.
As a well owner, you have control over your own water supply. This means you can test your water for quality whenever you want. You can also make adjustments to improve its quality and monitor its usage — like installing a reverse osmosis system or a UV water purifier.

The cons

Wells are vulnerable to droughts. For example, many wells in Texas are currently running dry following the state’s recent heat wave.
Contaminants can enter wells from nearby septic systems or agricultural runoff. Drinking contaminated well water can lead to serious illness. Common contaminants include coliform bacteria, microorganisms, radium, heavy metals, organic chemicals, fertilizers, radionuclides, and fluoride. Well systems can also be contaminated by human activities.

As a homeowner, you must manage and maintain your well water. But not all homeowners want the responsibility of keeping their water supply up and running, and that’s perfectly okay. If you prefer a more hands-off approach, city water may be a better option.
Owning a well can potentially limit your ability to build other structures on your property. When buying a home, find out where the well resides to avoid construction disturbances and delays down the road. Of course, you can always relocate the well to accommodate construction plans. But that’s about as easy and affordable as it sounds.
Wells are vulnerable to contaminants from disasters like floods and hurricanes. For guidance, check out the U.S. Centers for Disease Control and Prevention (CDC) safety precautions for disinfecting wells after a disaster.
If your water has high levels of magnesium and calcium ions, this can lead to water hardness and issues like limescale buildup in appliances and pipes. Well owners with hard water may need to use water softeners; otherwise their pipes and appliances can degrade, potentially leading to catastrophic problems.

Is well water safe?

New homeowners often assume that wells are perfectly safe to drink from. But without the proper treatment, they can contain high levels of harmful substances — like E. coli, pesticides, heavy metals, harmful bacteria, and animal waste. Consuming contaminated water can lead to gastrointestinal illness and other health risks. In fact, a recent United States Geological Survey (USGS) study reveals that roughly 23% of wells contain one or more contaminants at a level that can cause potential health effects.

Considering this, well water can still be perfectly safe to consume and use around the house — as long as you follow the right safety protocols. Well water safety depends on the following factors.

The surrounding environment

It’s important to consider the well’s location. Wells that are near septic systems, hazardous waste centers, and industrial sites can potentially be unsafe due to pollutants. Homeowners in such situations should take active measures to fortify their wells and potentially add additional filtration and purification methods.

The well’s construction

Proper well construction is necessary for maintaining superior drinking water quality. The well must contain a seal to prevent surface water from getting inside and contaminating it.

Proper maintenance

Wells can degrade over time or break due to movement from the earth or nearby construction. As such, it’s critical to inspect your well periodically and keep up with maintenance. Wells that sit for long periods of time without inspection or upkeep can become unsafe.

Treatment options for well water contaminants

While it’s impossible to completely prevent wells from contamination, there are several things you can do to remove or reduce the presence of harmful substances.

Reverse osmosis is an effective water purification method for removing contaminants like minerals, nitrates, nitrites, pesticides, bacteria, and viruses. It involves passing water through a semipermeable membrane to remove impurities and cleanse the water. Typically, reverse osmosis systems are located either in the house or near the point of use.
Aeration is a purification method that involves releasing air into the water. You can use aeration to eliminate radon, which is a naturally occurring radioactive gas.
Water filtration systems can remove things like sediment, chlorine, and other common contaminants. They come in various forms like sediment, carbon, and multimedia water filters. Filtration systems sit either in the house or at the point of use.
Well water testing can help identify different contaminants and inform you about your water quality. Generally speaking, it’s wise to hire a professional to test your water in a certified laboratory. It’s a good idea to get test results regularly — and especially in the event you detect a change in water color, taste, or odor.
Ion exchange systems use resin beads to eliminate ions like manganese, iron, and hardness minerals. An ion exchange system replaces these with harmless ions, like sodium.

Oxidation and filtration is yet another method to remove things like iron and hydrogen sulfide. This process involves converting substances into solid particles and then filtering them out.
Chemical disinfection (e.g., with chlorine) can kill microorganisms and bacteria in well water. However, some chemicals can be less effective against things like protozoa and parasites. To ensure safety, always use proper dosing and monitor your water quality.
Distillation involves heating water in order to create steam and then condensing it back into liquid. This is a great way to remove contaminants like heavy metals and chemicals.

Maintenance costs for wells

One of the nice parts about having a drinking water well is that you don’t have to pay monthly usage fees. On average, residential customers in the U.S. pay around $54 per month for water. But in some areas like California, water can exceed $80 per month.

That said, well owners still need to factor in maintenance costs which can eat into savings over time. Here are some costs to keep in mind.

Inspections

To ensure your well is functioning properly, you need to schedule routine inspections. During an inspection, a technician will inspect your well and ensure components like casing, pumps, and seals are in proper condition. The cost of a well inspection depends on your location, the well size, and the extent of the inspection.

Water testing

In addition to inspecting a well system, you’ll also need to test the water regularly. This is necessary for detecting and eliminating harmful contaminants — and otherwise making sure your water is safe to drink and won’t corrode your pipes.

Repairs

Wells may experience wear and tear as time passes, requiring extensive repairs. For example, you may need to repair or replace pump mechanisms or well casing. If the pump runs on electricity, you might need to replace components like pressure switches or control boxes.

Well cleaning

Wells can collect sediment and bacteria over time which can adversely impact water quality. Homeowners should periodically clean their well to keep it running in optimal condition.

Sealing

Wells that have contamination issues may require resealing or sanitation. Costs for this kind of work can vary depending on the scope of the job.

Relocation

In some cases, local health departments or other agencies may require homeowners to relocate their wells due to public safety issues, zoning and land use regulations, contamination concerns, or infrastructure development, among other things. This isn’t common, but if it happens, it can require extensive consultations, assessments, and negotiations to address. Unfortunately, in some instances, the homeowner may have to foot part or even all of the bill.

Replacement

The lifespan of a well depends on its type, local geology, and how well it’s taken care of. For example, a drilled well with proper installation and maintenance can potentially last for around 100 years. On the other hand, a driven well may only last 10 to 30 years.

With this in mind, check the age of a well before buying a house to see if it will require replacement under your care. Replacing a well may be expensive, but it can also enhance your property’s value.

Should you choose well water or city water?

There’s no right or wrong answer. It largely depends on where you want to live and whether you care about having to manage a well after purchasing a property. While maintaining a well might seem complex, it’s actually pretty simple with the right guidance, budgeting, and maintenance strategy.

At this point, you have a decision to make: Take on the responsibility of owning a well or opt for city water and a more hands-off approach to water management.

Struggling to decide which option is right for you? Home Approach is standing by to advise. To receive a consultation from one of our experts, sign up today.

Disclaimer:

Homeowner Real Estate

What are HOA fees?

Post author By Josh Schulman
Post date August 17, 2023

Before you become a homeowner, it’s essential to think about how much responsibility you want to have when it comes to managing your property.

Are you the type of person who likes to mow their lawn on a Saturday afternoon, cold beverage in hand? Or would you rather write a check and have someone else worry about it?

If you prefer a more hands-off approach to homeownership, you may want to look to buy a property that’s part of a homeowner’s association (HOA).

In this post, we’ll examine how HOAs work, what they cover, why they’re important, and how much you can expect to pay should you become part of an HOA community.

What is a homeowner’s association?

An HOA is an organization or entity that manages a community or residential development like a condominium or neighborhood. They typically are managed by an HOA board of directors, which includes elected members who live in the community. Most communities have HOA elections each year.

HOAs are responsible for overseeing various responsibilities, including infrastructure, aesthetics, maintenance, and shared common areas within a community. They act on behalf of the property owners and work to keep the community fair, orderly, and under budget.

In addition, associations enforce HOA rules, or covenants, conditions, and restrictions (CC&Rs). These governing documents keep the community in proper condition and help residents avoid conflicts because everyone knows what’s expected.

Today, roughly 22% of homes participate in an HOA — a figure that has remained consistent over the last decade.

What are HOA fees?

Homeowners association fees are regular payments homeowners who live in HOA communities have to pay. In most cases, homeowners distribute monthly dues to cover the costs of managing and maintaining the common areas and shared amenities within the community.

In some cases, HOA fees may also cover utilities like water, electricity, and cable or internet. However, HOAs can vary across different communities. Before purchasing a property, be sure to find out what your HOA fees cover so that you don’t wind up overpaying for services.

Are HOA fees mandatory?

HOA fees are generally mandatory for homeowners who live in a community or development with an HOA association. By purchasing a property within a condominium or community association, you automatically become an HOA member and must pay monthly HOA dues.

While you cannot buy your way out of an HOA, there are some scenarios where homeowners can gain a bit more control over their properties. For example, some communities offer non-mandatory HOAs with optional memberships and fees. However, non-members may not be able to access common amenities like community pools or fitness facilities.

In some cases, the homeowners in an established community may also vote to dissolve their HOA. However, this is rare and typically requires both a majority vote and legal counseling.

If you do not wish to participate in a community with an HOA, the easiest thing to do is purchase a property that’s not part of one.

HOA fees vs. special assessments

Homeowners in HOA communities contribute financially to the area’s upkeep through both HOA fees and special assessments. However, these are different types of expenses.

Special assessments are one-time or occasional payments that homeowners must make in addition to paying HOA fees. They typically occur when the HOA faces unexpected or significant expenses that exceed what is available in the association’s reserve fund or budget.

For example, a special assessment may cover major repairs, capital improvement projects, and emergency maintenance like roof replacements.

What do HOA fees cover?

The specific services that an HOA covers can vary depending on the community’s rules and regulations. But in general, you can expect your HOA fees to cover the following.

Insurance

HOA fees typically include insurance coverage for shared structures and common areas. They also include liability coverage for the association.

Security and surveillance

In some communities, HOAs help ensure safety. They may provide security cameras, arrange private security patrols, or restrict access to the community (e.g., with a gate).

Exterior maintenance

HOAs often cover exterior maintenance like roofing, siding, painting, parking lots, and structural repairs. They also typically pay for a property management company to oversee maintenance operations.

Administrative expenses

A portion of the HOA fee goes toward the association’s administrative costs. This may include things like hiring staff members, purchasing office equipment, and paying vendors.

Amenities

Communities often have shared amenities like tennis courts, swimming pools, clubhouses, and fitness centers. HOA fees help keep them up and running.

Common area maintenance

Fees also cover costs associated with maintaining common areas like community gardens, parks, walking trails, green spaces, and playgrounds.

Utilities and services

In some communities, HOAs manage utilities like cable, internet, and electricity. This can make life easier for homeowners by consolidating their bills into one easy monthly payment.

Reserve funds

HOAs use reserve funds to cover the cost of major repairs, renovations, and expenses.

HOA vs. no HOA: Cost comparison

Many homebuyers balk at the idea of paying into an HOA at first. But that changes when they do some quick budgeting and think about all of the expenses they might otherwise have to pay entirely on their own. As it turns out, an HOA can actually save you money if it’s affordable.

With that in mind, here’s a breakdown of some common services that an HOA covers that you’d have to pay for out of your own pocket as a homeowner.

Swimming pools

Condominiums and HOAs often have private swimming pools. If you buy a home that doesn’t have an HOA and you want a pool, you will need to cover all the costs associated with maintaining a pool — like water, cleaning, chemicals, and routine maintenance. You may also have to pay more for your homeowner’s insurance policy, too.

Landscaping

It takes a lot to keep a yard looking good. If you want to maintain your property yourself, you’ll need to purchase tools and equipment like lawnmowers, shovels, rakes, and trimmers. Otherwise, you’ll have to hire a landscaper. If your property has trees or other natural resources, you will need to care for those as well. If you live where it snows a lot, you’ll also have to pay to clear your driveway.

HOA fees typically cover landscaping costs as well as snow removal during the winter months — saving you time and money.

Upkeep and repairs

Without an HOA, you’ll be responsible for keeping up both the interior and exterior of your property. This includes things like painting, ensuring your roof and chimney are in good shape, pest control, and maintaining your walkways and driveway.

Do HOA fees build equity?

Equity is the difference between the market value of your property and what you owe to the bank. Unfortunately, HOA fees do not directly build equity for a homeowner like mortgage payments do. That’s because HOA fees go to the HOA association — not the lender that owns your mortgage.

That said, HOA payments can directly impact your property value. When an HOA is doing a great job at managing the community, HOA fees can potentially boost your equity, albeit indirectly. As a result, it’s critical to purchase a property with a responsible and financially secure HOA that is committed to doing its best to increase the value of community properties.

How HOA fees impact taxes

Unfortunately, HOA fees are generally not tax-deductible for homeowners. The Internal Revenue Service (IRS) views HOA fees as personal living expenses instead of tax-deductible expenses.

Despite this, there are exceptions where you can write off a portion of your HOA fees on your taxes. Some examples include owning a rental property within an HOA community, claiming a home office deduction, or when the HOA assesses special fees or assessments for capital improvements.

Do HOA fees increase over time?

Just like pretty much everything else in life, HOAs generally increase over time. For example, you might purchase a property and pay $350 per month in HOA fees at first. But down the line, it’s possible that those costs could balloon to $500 or more due to any of the following factors.

Inflation and cost of value

The price of goods and services tends to increase over time due to inflation and the cost of living. HOAs often need to adjust their fees to cover the rising cost of labor, materials, utilities, and other expenses.

Aging infrastructure

Large planned communities require a variety of infrastructure like roads, fences, drainage systems, docks, grills, and benches. HOAs may sometimes raise their fees to fund capital improvement projects or fund repairs.

Market conditions

HOAs are also subject to changing economic conditions in the real estate market. HOAs sometimes increase fees to make up for revenue shortfalls when property values plummet.

Reserve fund planning

Part of the HOA’s job is to review and adjust reserve fund contributions. The HOA may occasionally raise their fees to ensure financial stability and prepare for emergencies.

Insurance and legal costs

Insurance premiums tend to rise over time, which can impact homeowners’ wallets. In addition, HOAs sometimes must budget for legal disputes.

When purchasing a property with an HOA, you should ask your real estate agent for a breakdown of average HOA payments for your target property. This will help you understand how the HOA’s fees have changed over time, giving you a sense of where they might be heading.

Average HOA fees: How much can I expect to pay?

Monthly HOA fees can range from a few hundred to thousands of dollars. Right now, the average cost for HOA fees in the U.S. is around $300 per month. But depending on where you end up moving, it can be much higher. With that in mind, let’s take a look at some of the key factors that determine the total cost of an HOA fee.

Location

The location of your property will directly impact what you pay as an HOA fee. For example, HOA fees tend to be higher in urban areas like New York City or Miami, as well as upscale neighborhoods, tourist spots, and vacation destinations.

Amenities

The more amenities you have, the more you can expect to pay in HOA costs. If your community has three or four swimming pools, a golf course, or a modern fitness center, your bill will be significantly higher.

Oftentimes, homeowners wind up paying for services that they occasionally use — like the swimming pool they jump in a couple of times during the summer. Before buying a home, take a look at what you’re paying for and determine whether it’s worth the cost.

Property type

The type of property that you own may also impact what you pay in HOA fees. For example, condominiums and townhouses are usually more expensive than single-family homes because they contain shared areas and amenities. On the other hand, a shared home HOA may only cover things like landscaping, security, snow removal, trash removal, and other basic services, resulting in a lower monthly price.

Community size

Large communities with 10 or 20 buildings tend to have higher HOA fees than smaller ones. That’s because they tend to have more shared spaces, more amenities, and more properties to look after. Larger communities are also more prone to lawsuits, which can result in higher payments.

The HOA’s financial health

HOAs that lack adequate reserves and efficient planning tend to have less stable fees and higher expenses. Working with a well-managed and ethical HOA can help keep costs under control.

Tips for managing HOA fees

Whenever you’re joining a new community, you’ll want to stay on top of monthly payments so you don’t draw the ire of your new neighbors or your HOA. Missing payments can also result in collections notices, late fees, and legal actions. Here are some tips that can help you avoid conflicts and enjoy a better quality of life.

Attend HOA meetings

By attending monthly HOA meetings, you can stay on top of community issues and voice your opinion about monthly fees and potential increases. If you can’t attend HOA meetings, ask about digital resources like community bulletins, newsletters, and user dashboards.

Keep a careful record of payments

HOA payments will add up over time, so it’s a good idea to track your overall spending. Keeping careful records can also help clear up discrepancies when they arise. If possible, consider using an online portal so that all payments are recorded in one place.

Budget for payments

It’s important to be realistic about whether you can afford your monthly HOA payment in addition to all of the other fees you’ll have as a homeowner — like mortgage payments, property taxes, utilities, food, furniture, and insurance. Your HOA payment should fit comfortably within your budget and still leave you enough room for a decent quality of life.

As a best practice, budget a bit higher to account for any changes to HOA fees or special assessments that may be coming down the road. Pro tip: Always set aside a portion of your savings to cover unexpected expenses.

Demystify HOA fees with Home Approach

Buying a house can be an overwhelming experience with many different figures and details to consider. If you’re having a hard time understanding what it means to join an HOA, that’s perfectly normal.

That said, HOA payments are a critical piece of the financial puzzle when assessing home prices. For further guidance, we recommend scheduling a consultation with one of Home Approach’s expert advisors. Our professionals are well-versed in the intricacies of HOAs and can provide valuable insights to help you make informed decisions.

To gain a deeper understanding of HOA fees and access personalized guidance, sign up for Home Approach today.

Disclaimer:

1st Time Homebuyer Homeowner Real Estate

Septic vs. Sewer: What Homeowners Need to Know

Post author By Josh Schulman
Post date August 17, 2023

If you’re like most people, you probably don’t spend much time thinking about wastewater.

But when you’re buying a new home, it’s a good idea to understand the essential role that wastewater management plays in maintaining a healthy, sustainable, and efficient living space. In fact, when it boils down to it, wastewater management is one of the most important considerations you need to make during the homebuying process.

That’s because homes quietly churn out substantial amounts of wastewater every day. Believe it or not, the average household in the United States produces around 138 gallons of wastewater each day from places like the tap, shower, washing machine, toilet, and dishwasher. To put things in perspective, that’s roughly seven standard bathtubs full of water.

But where does it all go?

There are two primary methods of dealing with household wastewater: septic and sewer systems. Ultimately, your home’s wastewater management system will directly impact your daily life, maintenance routine, and long-term expenses.

With all this in mind, let’s plunge deeper into the topic of septic versus sewer systems and explore how they work, their main differences, and their financial impact.

What is a septic system?

A septic system is a decentralized or localized method of treating and removing wastewater. With this type of system, all wastewater management takes place independently on the property without connecting to a central or municipal sewer.

According to the United States Environmental Protection Agency (EPA), more than one in five households in the U.S. depend on individual septic or small community cluster system for wastewater treatment.

Septic systems are common in suburban and rural areas that lack access to public sewer systems. Some cities allow homeowners to install private septic systems, although this isn’t very common.

How does a septic system work?

Septic systems funnel household waste into a single underground tank for treatment and removal.

Sewage enters the tank from the house through a pipe and flows into a general basin where it goes through a separation process. Solid waste — like toilet paper and organic matter — sinks to the bottom of the tank and forms a layer of sludge. Lighter materials like oils and fats float to the top of the tank and generate a layer of scum.

The partially treated liquid that remains in the middle layer exits through a separate outlet pipe. This liquid contains special microbes and natural bacteria that break down and digest the organic matter, further treating the wastewater.

After exiting the septic tank, the effluent flows into a drain field — or leach field — for absorption. At this point, the water moves through a network of surrounding pipes and gravel and eventually returns to the soil which acts as a filter by removing harmful pollutants and pathogens. Eventually, the water becomes compatible with the groundwater and the local environment.

The pros and cons of using a septic system

The pros

When you have a septic system, you don’t have to pay monthly sewer fees, which could lead to potential savings.
Septic systems tend to be more environmentally friendly than centralized sewer systems. This is mainly because they use natural biological processes to break down waste. They also require less energy.
Septic systems operate independently from centralized sewage networks. This gives the homeowner more control over things like maintenance, repairs, and upgrades.
Septic systems provide effective wastewater management in rural or remote areas where centralized sewers are not available.

The cons

It can be cost-prohibitive to install or replace a septic system. By one estimate, the average cost of a septic tank installation is around $7,000 while a complete septic system can run anywhere from $10,000 to $25,000. That said, with proper maintenance, the lifespan of a septic system is generally around 20 to 40 years or longer.
Septic tanks are prone to operational failure due to inadequate maintenance, excessive water usage, and improper installation. They can also clog from excessive solids.
Septic tanks can potentially contaminate surface and groundwater without proper installation or maintenance. This can lead to significant health risks. In addition, septic systems can produce foul odors when they malfunction, and also when they’re cleaned.

A poorly functioning system can negatively impact your property value. Buyers may be unwilling to purchase a property with an outdated or unreliable septic system that’s prone to backing up.
You’ll need to find reliable and cost-effective plumbers and septic system companies to help with ongoing maintenance and inspections. Not all companies are reliable or trustworthy, and picking the wrong vendor can lead to costly mistakes.

What is a sewer system?

A sewer system is a network of pipes and infrastructure for collecting, moving, and treating wastewater. Public sewer systems serve homes, businesses, and public communities.

Unlike a decentralized septic tank, all sewer processing takes place off-property at a dedicated treatment facility.

Sewer systems mainly exist in urban and suburban areas where houses and properties are close together.

How does a sewer system work?

In a sewer system, all wastewater flows through pipes into a main drain pipe — or house sewer — which runs from the house to the municipal line. The municipal sewer line moves wastewater from multiple homes and buildings into a central treatment plant.

When water enters the wastewater treatment plant, it goes through a series of cleansing processes to remove pollutants, contaminants, and harmful materials. This includes physical, biological, and chemical methods. After the water is clean, it flows back into the environment.

The pros and cons of using a public sewer

The pros

Public sewers offer a convenient and reliable way for homeowners to manage wastewater. Homeowners don’t have to worry about things like septic tank pumping, installation, or maintenance, which saves time and money.
Homes that connect to a public sewer system may have a higher property value; there aren’t any septic system costs to consider. Buyers often view properties that have reliable and well-maintained systems more favorably.
Sewer systems prevent the need to have on-site wastewater storage. This prevents foul odors and unsightly backups.
By using a sewer system, homeowners can avoid navigating septic system regulations and permitting processes. When you connect your home to a city or municipal sewer system, you hand over the responsibility of wastewater management to the local municipality, sparing yourself from having to maintain a private septic system.

The cons

Homeowners still need to maintain the sewer lateral — the piping that connects their property to a main sewer line. These sewer pipes can occasionally clog and lead to backups that require professional repairs.

Homes that connect to city sewer systems become dependent on them for wastewater removal. If a system fails to work, it can impact the property and take time to resolve.
Local governments are responsible for wastewater treatment. Homeowners do not have direct control over their effectiveness and environmental impact.
Sewer systems traverse congested urban areas, making them more vulnerable to external disruptions like construction, accidents, and utility conflicts.

Septic tanks vs. city sewer: Maintenance costs

As a homeowner, you’re going to wind up paying for wastewater maintenance whether you purchase a property with a septic tank or one that’s plugged into the public sewer system. There’s no getting around it.

Even so, understanding the differences in maintenance costs and responsibilities can help you make a decision that best suits your preferences, needs, and budget.

With that in mind, let’s take a closer look at how maintenance costs differ between septic tanks and city sewers.

Septic tank maintenance costs

Pumping

Septic tanks require routine pumping in order to eliminate scum and solid waste. Failure to remove waste can lead to clogs and overflow.

Septic tank pumping frequency depends on the size of your tank, water usage, and household size. So, if you opt for a smaller tank to save money, you may wind up paying more over time in pumping fees.

When buying a home, it helps to think about how long you intend to stay in the property. If you’re planning to move again in three to five years, you might be able to avoid having to pump your tank — particularly if you have a larger tank and only two people live in the house.

Inspections

It’s critical to inspect your tank regularly for leaks, damage, and proper functionality. Inspection frequency depends on local regulations and the age of your system. Most homeowners inspect their tanks every one to three years.

Repairs and replacements

Septic systems require routine repairs or replacements due to issues like clogs, damage, and filters. Keeping up with routine maintenance can help avoid costly repairs.

Sewer system maintenance costs

Monthly fees

Most municipalities charge taxpayers to use public sewer systems, and the average U.S. sewer bill is $66.80 per month. However, this can vary depending on water usage, the availability of local water supplies, and location.

Connection fees

If your property doesn’t have a connection to a sewer system, you’ll need to pay a hookup fee to access public lines. This fee covers the cost of extending the sewer from the property to the main network.

In most cases, local governments don’t directly charge for sewer abandonment or disconnecting from a network. However, you may wind up paying indirectly for disconnection permits, plumbing changes, and inspections. Disconnecting from a sewer may also negatively impact your property value.

Permit fees and inspections

Some municipalities charge homeowners to connect to local sewer systems or perform repairs or construction. You may also need to pay for local inspections to ensure compliance with building and safety codes.

Sewer lateral and service

While homeowners don’t need to maintain public sewer infrastructure, they are typically responsible for the sewer service line that connects their property to the main sewer line. This can require maintenance, repairs, or replacements.

Need some advice? Home Approach is here to help

As you can see, wastewater management is a big topic of concern for home buyers — and something that requires careful consideration. Both options have pros and cons, making it difficult to determine which is right for your specific needs.

Home Approach specializes in helping home buyers like you navigate the first-time purchasing process. Our experts specialize in breaking down complex real estate topics so they’re easy for you to understand. If you’re on the fence about whether to go with a home that has its own septic system or one that’s connected to a public sewer system, Home Approach can provide guidance and support.

Ready for a consultation? Sign up for Home Approach and speak with an expert today.

Disclaimer:

1st Time Homebuyer Downpayment Guides Real Estate

PMI Guide: Your Guide to Private Mortgage Insurance

Post author By Josh Schulman
Post date August 17, 2023

What is Private Mortgage Insurance (PMI)?

Conventional wisdom says paying less for something like a car or computer upfront is better. But when it comes to real estate and homeownership, this doesn’t always apply. In some cases, paying more upfront can lead to substantial long-term savings.

While it may seem counterintuitive to part with a larger sum upfront when you’re buying your first home, you can potentially avoid paying private mortgage insurance (PMI) and lower your monthly mortgage payments by putting down at least 20%. While you might find yourself more cash-strapped in the immediate future, you’ll have more money to stash in the bank or make upgrades and renovations over the long term.

If you’re wondering how PMI works, you’ve come to the right place. This primer provides a complete overview of PMI and addresses the following topics:

What is private mortgage insurance?
Who needs private mortgage insurance?
What is the cost of PMI?
PMI vs. homeowners insurance
How to minimize or avoid PMI
FAQs about PMI

What is private mortgage insurance?

PMI is a type of insurance that lenders require from borrowers who have a conventional mortgage with a down payment of less than 20% of the home’s purchase price. PMI is designed to protect lenders in the event borrowers default on their loans.

When a borrower puts less money into a property as a down payment, the lender’s potential financial loss from a default is higher. PMI offsets this risk by providing a financial safety net that protects lenders in the event homeowners can’t keep up with mortgage payments.

Who needs private mortgage insurance?

Lenders typically require PMI when a borrower puts down less than 20% of the home’s purchase price. This is due to the fact that lenders often perceive this as a higher-risk investment because homeowners have less equity in the property from the outset.

When a borrower puts down 20% or higher, this indicates a lower loan-to-value (LTV) ratio, which signifies that a borrower only needs financing to cover a smaller percentage of the home’s value. As a result, the lender is in a less risky position because the borrower has a significant equity stake in the property the day they move in.

What is the cost of PMI?

According to the Urban Institute, the average cost of PMI with a conventional home loan can be anywhere from 0.58% to 1.86% of the original loan amount. On a $300,000 mortgage, this could translate to anywhere between $145 and $465 extra per month. That said, the total cost of PMI can vary based on several factors, which we’ll examine in this section.

The loan amount

The PMI rises proportionally as the overall loan amount — or principal balance — increases. This makes sense since a larger loan amount presents a higher risk to lenders. As a result, larger loans typically command higher insurance premiums.

Credit score

Lenders rely on credit scores to assess borrowers’ creditworthiness and ability to manage debt responsibility. They tend to view homebuyers with higher credit scores as less risky, which translates into offering them lower PMI rates.

That being the case, it’s critical to check your credit score before applying for a loan. If your score is lower than you’d like it to be, start paying down revolving debt and making on-time payments to credit card bills. By doing so, you can potentially boost your score, resulting in a lower PMI rating. However, paying down your debt leaves you with less money to put toward a down payment — which is just a tradeoff you’ll need to consider.

Size of the down payment

Generally speaking, you should aim for an LTV ratio no higher than 80%. For example, suppose you’re buying a house for $300,000 and planning to finance the bulk of it via a conventional mortgage. In this scenario, you need to put down at least $60,000 to avoid paying PMI.

Home value and appraisal

When calculating potential PMI costs, it’s also necessary to consider the appraised value of your home. As a brief reminder, a home appraisal is conducted by a third party, who assesses the property’s current market value.

Of course, property values can change over time. If your home’s value appreciates significantly, the LTV ratio could drop, decreasing PMI costs — or even eliminating them altogether.

The terms of the mortgage payment

PMI requirements tend to vary depending on the type of loan. For example, government-backed Federal Housing Administration (FHA) loans, Veterans Affairs (VA) loans, and United States Department of Agriculture (USDA) loans all have different rules regarding PMI and down payments:

FHA loans require a minimum down payment of just 3.5% and include mortgage insurance premiums (MIP). Unlike PMI, MIP lasts throughout the loan’s entire life if the down payment is less than 10%. However, the homeowner can eliminate MIP after 11 years if the down payment is 10% or more.

VA loans don’t require any down payment or PMI. Such loans are only available to eligible veterans, National Guard and Reserves members, and active-duty service members.
A USDA loan doesn’t come with a PMI. Instead, USDA loans have a guaranteed fee which provides insurance to the lender in the event the borrower defaults. This upfront fee often rolls into the monthly mortgage payment amount.

PMI vs. homeowners insurance

Any time you use a mortgage to buy a house, you’ll also need homeowners insurance — also known as hazard insurance — which protects the buyer against property damage from covered events like fires, floods, hurricanes, theft, or vandalism.

Homeowners insurance covers the physical structure of the home, as well as personal belongings, injury liability, and additional living expenses if the house becomes uninhabitable. Some homeowners use homeowners insurance to cover valuable items, like engagement rings and expensive artwork.

That said, homeowners insurance doesn’t protect you against defaulting on a mortgage. There are insurance products, like MPI and mortgage payment protection insurance (MPPI), that do cover you. This insurance specifically provides financial assistance to homeowners who face difficulty making their mortgage payments due to disability, critical illness, or job loss.

How to minimize or avoid PMI

The only real upside to having PMI is that it helps you buy a house while putting less down. Beyond that, there isn’t any glory in making PMI payments; PMI doesn’t build equity or help you financially in any way. As such, it can become a financial burden over time. In light of this, there are some things you can do to minimize your PMI commitment.

Save for a larger down payment

The easiest way to avoid paying PMI is to save as much money as possible when buying your new home. Aim to make a down payment of at least 20% and eliminate the need for PMI.

That said, in addition to putting 20% down, you’ll also need to set aside cash for closing costs — like loan origination fees, property taxes, inspections and appraisals, and attorney expenses. Unfortunately, closing costs can tack on thousands of extra dollars during home buying, leaving you with less money to put down.

Ask your lender about different options

Don’t be afraid to ask your lender about loan programs that offer alternatives to PMI. For example, you may be eligible for lender-paid mortgage insurance (LPMI). While this might result in a higher interest rate, it could prevent you from having to make separate PMI premiums.

Review your lender’s PMI policies

If you don’t like a lender’s PMI rate, shop around and compare different options. You may be able to qualify for a lower rate from another lender.

Request PMI removal

Keep in mind that PMI payments aren’t forever. Once your equity reaches 20% of the home’s value based on the original LTV ratio, you can request PMI removal. For conventional mortgages, automatic cancellation occurs when the loan reaches a specific LTV ratio (e.g., 78%).

Make rapid payments

If you’re in a position to do so, consider making additional payments on your loan balance. Reducing your mortgage balance can help you reach the 20% equity mark faster and reduce the overall duration of your expenses.

Choose a shorter loan term

Another option is to opt for a shorter loan term. For example, you may select a 15-year mortgage instead of a 30-year loan. Requesting a shorter mortgage helps build equity faster and repay the loan sooner. The only downside is your monthly mortgage payments will go up.

Refinance

While refinancing doesn’t automatically eliminate PMI, it can save you a lot of money if you have substantial equity in your property (e.g., if you bought your house in 2019). It’s worth talking to your lender or financial advisor to determine whether refinancing can impact what you pay each month.

Private mortgage insurance: FAQs

How do you pay PMI?

Most lenders allow borrowers to pay PMI in monthly installments tacked on to their regular monthly payments. However, some lenders also give the option to make annual lump sum payments or access lender-paid arrangements.

Is PMI for conventional loans?

PMI is often attached to conventional loans that lack the support of a government agency like the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA), which come with their own insurance and guarantee mechanisms. Unless you put down at least 20%, PMI applies to both fixed-rates and adjustable-rate mortgages.

What is split-premium PMI?

Split-premium PMI is a type of insurance where the borrower pays an upfront premium and ongoing monthly payments.

With split-premium PMI, the upfront premium is a one-time payment at the beginning of the loan. It’s similar to paying upfront fees with a mortgage. The upfront payment reduces the monthly payment amount, leading to lower overall PMI costs over the life of the loan.

Availability for split-premium PMI can vary among lenders. As with any other aspect of home financing, it’s important to review the terms, costs, and benefits of split-premium PMI compared to other options.

Is PMI tax-deductible?

Unfortunately, the PMI tax deduction isn’t available for the 2022 tax year. However, some homeowners may be eligible to deduct PMI payments for past tax years (certain restrictions apply). Of course, Congress may act to make PMI deductible once again in the future; time will tell.

What is piggybacking?

Piggybacking is a financial strategy where a borrower uses two loans to purchase a home. In certain circumstances, piggybacking can enable you to avoid paying PMI.

For example, a borrower might take out a conventional mortgage for 80% of the home’s purchase price and a second mortgage for 10% of the home’s value. Combining these two loans with a down payment of 10% or more covers the entire purchase of the house, enabling you to avoid PMI.

Do lenders require PMI if you use a HELOC?

Lenders may require PMI if you use a home equity line of credit (HELOC). In this scenario, the primary mortgage and HELOC contribute to the combined loan-to-value ratio (CLTV). If the CLTV ratio reaches a certain threshold, the lender might require PMI to mitigate risk.

When it comes to PMI, lender policies tend to vary. For example, some may offer alternative options like higher interest rates. To increase the chances you make the best decision, it’s important to communicate with your lender about your situation and explore different options.

Is it better to put down 20% or pay PMI?

If you can afford it, putting down 20% is smarter than paying PMI. Not only will you be responsible for covering lower monthly mortgage payments, you’ll also start your homeownership journey with more equity in your home, leading to greater financial security.

On the other hand, paying less upfront frees capital for other investments like home improvements and emergencies. A lower down payment also allows you to become a homeowner sooner — something that may be worth it due to skyrocketing home prices.

At the end of the day, you need to consider your financial goals, timeline, and risk tolerance to determine whether to put down 20% or pay PMI. To increase the chances you make the best decision, consult with a financial advisor or mortgage professional to learn which option is better for you.

Is it common for borrowers to default on their loans?

While most homeowners don’t default on their loans, it is not uncommon for homeowners to be incapable of paying their mortgages. Even so, the latest data indicates U.S. mortgage delinquency rates reached an all-time low in May due to a strong labor market that helps borrowers make their mortgage payments on time.

Currently, the share of all delinquent mortgages is hovering around 2.6%. Of this, just 1.3% include early stage delinquencies (30 to 59 days past due) — a 1.1% year-over-year increase. That said, 14 states and almost 170 metropolitan areas saw delinquencies increase annually in May.

Does Freddie Mac provide mortgage insurance?

The Federal Home Loan Mortgage Corporation (Freddie Mac) is a government-sponsored enterprise that purchases mortgages from lenders. While Freddie Mac doesn’t directly provide any mortgage insurance policies, it influences the market and the availability of loans with PMI through its guidelines and requirements.

Ready to start shopping for a loan estimate?

To encourage activity, more and more lenders are now issuing loans to folks who put down 5% or less when they buy a house. As a result, homebuyers are increasingly considering putting less money down and paying monthly PMI to cover a portion of their loans.

Signing up for PMI is a major personal finance decision that will have a big impact on your monthly mortgage payments. That being the case, it’s critical to assess your financial situation and determine whether it’s a good fit.

Before you start thinking about PMI, it helps to understand what kinds of loans are available to aspiring homeowners like yourself. In case you’re unaware, there are tons of different mortgage loans available for first-time homebuyers — each with varying requirements for down payments, insurance, mortgage terms, and eligibility.

To learn more about how to secure financing for a property, check out our mortgage loan primer.

Disclaimer: