I’m paying for WHAT? A new homeowner’s guide to budgeting

Chattanooga real estate - costs of homeownership

Many new potential homeowners look at their monthly payment and think ‘Hey! That’s less than I’m paying for my apartment.’ What they don’t always consider is the added cost of having your own place. So what should you consider when you are making out your newly-house-proud budget? What are the other costs of homeownership?

The obvious: Principle and Interest

You can figure this out by checking out my handy dandy loan calculator which should be right over there —->.

Your interest rate is going to be a huge factor here. That’s why now is a Fab. U. Lous. time to buy even if you think prices are going to decline slightly in the future. There’s nowhere to go but up with interest rates.

The less obvious, but still included in your basic monthly payment: Taxes and Insurance

You’re going to have to pay property taxes & ‘hazard’ or ‘homeowner’s’ insurance.. Maybe even flood insurance. These items will be paid out of your escrow account and added into your monthly payment. They will be considered by your lender in deciding how much you can afford.

Still less obvious: Utilities

Sure, maybe you pay your own electric or gas bills at your apartment but how much do you think the size of that new McMansion matters? Not to mention that in your apartment you may be ‘insulated’ by the other units around you. A 1500 sq ft single family home is going to be a lot more expensive to heat and cool than your 800 sq ft apartment. And the gas bill for that gorgeous 1915 Craftsman with the original single-paned windows…well, you probably don’t even want to know.  And then there’s the other stuff you may not think about that are sometimes included in your monthly rent: water, sewer, cable, phone, gutter cleaning, lawn mowing, garbage pick up… you get the idea. Now, in most areas of Chattanooga you won’t be paying for garbage pick up but if you opt to move out to the sticks of Signal Mountain or Sale Creek, you might find yourself either paying for it or with a back seat full of junk every week.

The thing no one wants to talk about: Repairs

Yep, that beautiful little brand new construction home o’ yours is going to need repairs. Sooner or later. Whether it’s a toilet handle that needs jiggling or a new roof, you’re going to have to fix something, sometime. And don’t even think about just letting it go. That only makes it worse and costs more in the long run.

You don't want to have to leave it this way
You don’t want to have to leave it this way

The fun stuff: Improvements and decor

Maybe you’ve never lived anywhere that you were allowed to paint, put up curtains, change out the tile, add on a new bathroom…you see where I’m going with this. Now that you have that spiffy new place, you’re going to want to invite friends and family over for Thanksgiving. And that means you need a shiny new dining room table twice as big as any you’ve ever had. You don’t want to get to the end of the month and not have anything left over for that gallon of flat enamel that will make your den Absolutely. Perfect.

The moral of the story:

When you are working out the budget for your new house, make sure you consider ALL of the costs of homeownership. Don’t just take the word of your lender who says you can afford a $1,500 mortgage payment. Think it through and consider stepping back just a little so you can not only make your payment, but also buy the groceries to go in that lovely new stainless steel side by side.

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Trust me, I’m a Realtor

I’ve been updating my website (do you love it?!) and my new one has a spot for a slogan and a tagline. Not being much of one for such things, I googled “real estate taglines” and started perusing some options. For Pete’s sake! They were uniformly awful or terribly cliched. Some were so bad they made me laugh out loud. So I started thinking about what I would do to make them a little more, ahem, truthful. This is the first one I came up with.

Trust me, I'm a Realtor

No offense to used car salesmen, but I mean, really, the Realtor’s Code of Ethics notwithstanding, most people don’t think of maximum trustworthiness when they hear the word Realtor, do they? There’s just something about commission sales that brings out the worst in people.

My dad was a broker back in the 80s & 90s so he’s always asking me about showings and such. Our conversations often go like this:
Dad – Did they like the house you showed them?

Me – They liked it at first but I think I talked them out of it.

Dad – Um, really? Why do you do that? If you were working for me I’d fire you.

Me – It looked like it might have a water problem and I pointed out that the outlets aren’t grounded and the floors are wonky.

So yeah, I frustrate my dad a lot. And if you still want the place after I’ve point out all the things wrong with a house, then I’ll do my darnedest to get it for you at a price that will let you to spend some money rewiring and leveling floors and regrading. But I’m never going to stand there hoping you don’t notice. So I guess what I’m saying is that you really can trust me, but it isn’t because I’m a Realtor.

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Looking for something in particular?

A lot of people start out looking at homes for sale on Zillow or Trulia. Both of those sites give me the twitches. They’re fine if you’re just browsing, but horrible once you get a little more serious. They rely on syndication from the local MLS (Multiple Listing Service, i.e. where Realtors enter homes for sale in Chattanooga) boards. Unfortunately, it takes a few days for the listings to show up. And it can take weeks or months for them to disappear once the house goes under contract or closes. There’s nothing worse (well, there are much worse things, but you see my point) than Chattanooga Homes for Salegetting your heart set on something you see on Zillow, only to find out that the status information isn’t correct and you just can’t have it. Cue sad trombone.

Luckily, there’s a cure for the syndication blues. Let’s say you want to see North Chattanooga homes for sale built before 1940 with more than three bedrooms. Or maybe you’re interested in Ooltewah homes for sale under $350,000 in communities with a golf course. Perhaps you think that you should be looking at Signal Mountain homes for sale zoned for Thrasher Elementary which have at least 2,500 square feet. I can do that. I have the technology.

And I can deliver it right into your inbox every day. If an agent enters a listing on a Tuesday, you’ll have it around midnight that night and we could be looking at it on Wednesday, making an offer on Thursday and be under contract by Friday. About the time that it shows up on Zillow.

All you need to do is contact me and let me know what you’re looking for, bedrooms, bathrooms, areas, acreage, schools, schools, pools or lack thereof, you get the idea. Give me your email address and voilà! Easy peasy.

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How to buy a house in 25 easy steps, Part I

I work with first time home buyers quite often and most are intimidated (to say the least) by the home buying process. Here’s a little secret: it’s really not that hard. Do your homework beforehand, choose a Realtor (like me!) and a lender you can trust and then, barring something strange happening, you’ll likely go from renter to homeowner with as little stress as possible.

This is part I of my series on how to do just that: Chattanooga Real Estate 101

1. Unless you have the purchase price of a house hidden in your mattress, you are going to need to get your credit in order. Click here for more information about how to do this. Start on this at least 3-4 months before you are going to be looking to buy. You often will find errors on your credit report that can take a while to be corrected. You don’t want to be scrambling to fix these things while a mortgage broker is staring you in the eye.

Missionary Ridge home with a view2. Make a list of “must-haves,” “like-to-haves,” & “must-not-haves.” Do you have a Great Dane, an Irish Wolfhound, a Husky and a Chocolate Lab? You’re probably going to have to have a fenced yard. If, however, Fido is a Pomeranian, that fenced yard might be nice to have but not essential.

3. Think about what areas you might like to live in. Interested in a historic home? Check out some of my blog posts about Chattanooga’s historic neighborhoods. Consider where you work, where your kids go to school (or where you’d like them to), what amenities you want close by, what kind of vibe you’d like your new neighborhood to have, etc. Your must-haves & must-not-haves will factor into this. If your main concern is wooded privacy and room to spread out you probably shouldn’t be looking in Highland Park. If, on the other hand, you want to be in the middle of Chattanooga’s nightlife, a Market Street condo might be the way to go.If you don’t know anything about Chattanooga or its real estate market, a good Realtor (like me!) can help you narrow down your search.

4. Think about what your budget should be. In this case, think of it in terms of a monthly payment, not a purchase amount (we’ll get to that part later). Don’t try to decide the most you want to pay, decide what you are comfortable paying each month. Are you going to be cooking steaks in your new kitchen or throwing ramen noodles in the microwave? You also need to realize that the monthly payment on the loan isn’t going to be your only expense. There will also be property taxes, home owner’s insurance (sometimes called hazard insurance), mortgage insurance if you aren’t putting down a 20% down payment, not to mention potential repairs. Budget tip: Looking outside the city limits can sometimes stretch your dollars because you won’t be paying city property taxes.

5. See, this isn’t that hard so far! Your next step is to find a Realtor – luckily, if you’re in the metro Chattanooga/NW Georgia area you can go ahead and check this one off your list by going here. If you live in Kalamazoo, you’ve got some looking to do. What should you be looking for? Number one: someone who answers the phone. I know it sounds simple but you would be surprised how hard it can be to get someone to return a call. Number two: someone who knows the area. Number three: someone who isn’t the name on the sign sitting in the yard of a house you think you might like. Chances are, unless it is a limited service listing like some of mine, that person is working for the seller. It usually doesn’t cost you anything more to have your own agent looking out for your best interests so why not make sure you have your own representation?

Stay tuned for Part II of Chattanooga Real Estate 101

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How to buy a house, Part II

Done with steps 1-5? Are you ready to actually start looking for your new home? Nope, not yet, false alarm.

6. Start thinking about what type of loan programs you might qualify for. Are you a veteran? First time home buyer? Are you flat busted broke or have you been saving since elementary school? All of these things can influence your next step…

7. Find a lender. Your Realtor can give you some possible connections. Is it necessary to use someone your Realtor refers? Absolutely not, but even if your Realtor pushes you in a certain direction don’t assume that there is some nefarious goings on with two people conspiring to drain you of your cash. The reality is that your Realtor and lender are going to have to work closely together and if they already have a good working relationship your purchase may very well go more smoothly and quickly. In addition, your Realtor might be able to steer you toward a lender who has the type of loan program that is best for you (or someone who has the best variety of programs out there).Reunion, East Brainerd, Chattanooga Real Estate

8. Work with your lender to decide what your budget will be. Now is where we start thinking about the actual dollar amount of your purchase. Be sure to keep in mind how much you are comfortable spending each month, not the maximum for which you qualify. Your loan originator will give you a pre-approval letter that will likely be required when you eventually submit any offers.

9. You have a lender and pre-approval, you have a budget, you have a Realtor, are you ready to look? At long last, yes. If you want to search on your own you can, but if you come up with too many possibilities a good Realtor (like me!) can do more detailed searches of the Chattanooga homes for sale to narrow down your choices and keep things from becoming overwhelming. Try not to be too specific, many buyers find that the home they eventually fall in love with doesn’t have everything they originally said they wanted.

10. OK, you’ve found the house of your dreams – or at least the house at the beginning of your dreams. Now what? It’s time to make an offer. The thing that strikes fear in the hearts of prospective home buyers the world over. It’s that little piece of paper (or 40) that binds you to the biggest purchase you’ll probably ever make. Makes you a little nauseous huh?

Next up, what happens after the offer…are you ready for part III of how to buy a house in Chattanooga?

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How to buy a house, Part III

OK, so you’ve found the house of your dreams, you’re pre-approved for a mortgage, you have a good Realtor (like me!) on your side. What’s next?

Windstone, Chattanooga real estate11. Writing the offer. This step really deserves its own post (which it will get one day). <EDIT: it did get its own post, making an offer!>

12. Write a check for earnest money. Earnest money is really just a deposit which lets the seller know you are “earnest” about going through with the deal if you eventually come to an agreement. Earnest money can vary from $0 up to 10% of the purchase price or more. For Chattanooga real estate, $500-1000 is typical although cash buyers are often asked for 10% as a sign that they actually have the cash. The amount of the earnest money and who holds it is a part of the offer and is a negotiable point. If you back out of the contract without exercising one of your contingencies, the earnest money goes to the seller. If you get to closing, the earnest money is credited toward the cash you need to bring to close.

12. Negotiating. You think they should leave the pool table, they think you should pay $20,000 more. That’s where negotiating comes in. Decide what you are willing to give in on and what you aren’t. Counter offers can go back and forth almost indefinitely. Once one of the parties agrees to the last offer/counter offer, the receiving party is notified. The date of that notification is the “binding agreement date” or BAD (how’s that for a great acronym?).

13. Congratulations! You have a binding agreement! Now comes the fun part. Your contract will call for certain things to be done within a certain number of days of the BAD. First things, your earnest money will be deposited into the broker’s escrow account if it hasn’t already but that will go on without your involvement.

14. Next, you will need to make formal application with your lender if you haven’t already. You may only have a preliminary approval which requires you to submit additional paperwork or information. If that’s the case, get that stuff turned in ASAP. If you miss any of the deadlines in your contract, the seller could choose to terminate it based on a timeline default.

15. Arrange for a home inspection. This isn’t a requirement but I always strongly recommend it. Almost all houses will have something wrong with them, even newly built ones, so don’t freak out just because your inspector finds a long list of things s/he thinks should be corrected. Take a look at the list and decide which items are total deal breakers, which ones you’d like the seller to repair & which ones you are willing to live with – it’s almost entirely up to you. Your contract might specify a pre-agreed repair allowance. The seller has agreed up-front to do a certain dollar amount in repairs. If this is the case, there is no reason NOT to ask for repairs that will cost up to that amount. If you don’t have anything in the contract for this, which is usually the case in foreclosures and other distressed sales, you will need to decide whether you want to re-negotiate or walk away from the deal.

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