What a Home Inspection Should Cover

Home inspections will vary depending on the type of property you are purchasing. A large historic home, for example, will require a more specialized inspection than a small condominium. However, the following are the basic elements that a home inspector will check. You can also use this list to help you evaluate properties you might purchase.

For more information, try the virtual home inspection at www.ASHI.org, the Web site of the American Society of Home Inspectors.

Structure: A home’s skeleton impacts how the property stands up to weather, gravity, and the earth. Structural components, including the foundation and the framing, should be inspected.

Exterior: The inspector should look at sidewalks, driveways, steps, windows, and doors. A home’s siding, trim, and surface drainage also are part of an exterior inspection.

·  Doors and windows
·  Siding (brick, stone, stucco, vinyl, wood, etc.)
·  Driveways/sidewalks
·  Attached porches, decks, and balconies

Roofing: A well-maintained roof protects you from rain, snow, and other forces of nature. Take note of the roof’s age, conditions of flashing, roof draining systems (pooling water), buckled shingles, loose gutters and downspouts, skylight, and chimneys.

Plumbing: Thoroughly examine the water supply and drainage systems, water heating equipment, and fuel storage systems. Drainage pumps and sump pumps also fall under this category. Poor water pressure, banging pipes, rust spots, or corrosion can indicate problems.

Electrical: Safe electrical wiring is essential. Look for the condition of service entrance wires, service panels, breakers and fuses, and disconnects. Also take note of the number of outlets in each room.

Heating: The home’s heating system, vent system, flues, and chimneys should be inspected. Look for age of water heater, whether the size is adequate for the house, speed of recovery, and energy rating.

Air Conditioning: Your inspector should describe your home cooling system, its energy source, and inspect the central and through-wall cooling equipment. Consider the age and energy rating of the system.

Interiors: An inspection of the inside of the home can reveal plumbing leaks, insect damage, rot, construction defects, and other issues. An inspector should take a close look at:
·  Walls, ceilings and floors
·  Steps, stairways, and railings
·  Counter tops and cabinets
·  Garage doors and garage door systems

Ventilation/insulation: To prevent energy loss, check for adequate insulation and ventilation in the attic and in unfinished areas such as crawlspaces. Also look for proper, secured insulation in walls. Insulation should be appropriate for the climate. Excess moisture in the home can lead to mold and water damage.

Fireplaces: They’re charming, but they could be dangerous if not properly installed. Inspectors should examine the system, including the vent and flue, and describe solid fuel burning appliances.

Source: American Society of Home Inspectors (www.AHSI.org)
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Common Closing Costs for Buyers

You’ll likely be responsible for a variety of fees and expenses that you and the seller will have to pay at the time of closing. Your lender must provide a good-faith estimate of all settlement costs. The title company or other entity conducting the closing will tell you the required amount for:
·  Down payment
·  Loan origination
·  Points, or loan discount fees, which you pay to receive a lower interest rate
·  Home inspection
·  Appraisal
·  Credit report
·  Private mortgage insurance premium
·  Deed recording
·  Title insurance policy premiums
·  Land survey
·  Notary fees
·  Pro rations for your share of costs, such as utility bills and property taxes·  Insurance escrow for        homeowner’s insurance, if being paid as part of the mortgage
·  Property tax escrow, if being paid as part of the mortgage. Lenders keep funds for taxes and         insurance in escrow accounts as they are paid with the mortgage, then pay the insurance or taxes for you.

A Note About Pro rations: Because such costs are usually paid on either a monthly or yearly basis, you might have to pay a bill for services used by the sellers before they moved. Pro-rotation is a way for the sellers to pay you back or for you to pay them for bills they may have paid in advance. For example, the gas company usually sends a bill each month for the gas used during the previous month. But assume you buy the home on the 6th of the month. You would owe the gas company for only the days from the 6th to the end for the month. The seller would owe for the first five days. The bill would be prorated for the number of days in the month, and then each person would be responsible for the days of his or her ownership.

The Pros/Cons of buying a fixer upper

A fixer upper can be very a tempting choice when you are looking to buy a home. Whether you are a first-time home buyer or real estate veteran, here are some pros and cons to consider before purchasing a property that needs major renovating.

A less-than-perfect house often allows buyers to own in a neighborhood they otherwise couldn't afford. A fixer upper located in a desirable neighborhood may often sell for less than the surrounding homes.

When redoing a home there is the opportunity to create a space all your own and make it exactly how you would like.

There are a lot of variables specific to each property, but often, there is a possibility for profit in resale once the property is renovated.

You may be overwhelmed with the amount of work, time and money it takes to renovate. (This is why it may be wise to bring professionals with you to walk through the property before you buy to avoid underestimating the work and cost.) Always have a back up plan to access funds or credit if any unforeseen hurdles are discovered during the renovation.

There is always a possibility that you could lose money on your investment. It is common to go over budget on repairs and renovations. The housing market is another variable that can be unpredictable.

Whether you're hiring with a contractor or doing the work yourself, the renovation process is often stressful. Consider the commitment before you buy, especially if you plan on living on the property while doing the renovation.

5 Things to Know About Homeowner’s Insurance

1. Know about exclusions to coverage. For example, most insurance policies do not cover flood or earthquake damage as a standard item. These types of coverage must be bought separately. 

2. Know about dollar limitations on claims. Even if you are covered for a risk, there may be a limit on how much the insurer will pay. For example, many policies limit the amount paid for stolen jewelry unless items are insured separately.

3. Know the replacement cost. If your home is destroyed you’ll receive money to replace it only to the maximum of your coverage, so be sure your insurance is sufficient. This means that if your home is insured for $150,000 and it costs $180,000 to replace it, you’ll only receive $150,000.

4. Know the actual cash value. If you chose not to replace your home when it’s destroyed, you’ll receive replacement cost, less depreciation. This is called actual cash value.

5. Know the liability. Generally your homeowner’s insurance covers you for accidents that happen to other people on your property, including medical care, court costs, and awards by the court. However, there is usually an upper limit to the amount of coverage provided. Be sure that it’s sufficient if you have significant assets.

Lender Checklist: What You Need for a Mortgage

W-2 forms — or business tax return forms if you're self-employed — for the last two or three years for every person signing the loan.

Copies of at least one pay stub for each person signing the loan.

Account numbers of all your credit cards and the amounts for any outstanding balances.

Copies of 2 to 4 months of bank or credit union statements for both checking and savings accounts.

Lender, loan number, and amount owed on other installment loans, such as student and car loans.

Addresses where you have lived for the last five to seven years, with names of landlords if appropriate.

Copies of brokerage account statements for two to four months, as well as a list of any other major assets of value, such as a boat, RV, or stocks or bonds not held in a brokerage account.

Copies of your most recent 401(k) or other retirement account statement.

Documentation to verify additional income, such as child support or a pension.

Copies of personal tax forms for the last two to three years.

Borrowing from a 401(k) to Make a Down Payment

Make sure you understand the rules and risks before tapping your retirement savings to pay for a home.

It looks like I’m going to need to take money from my retirement savings to make a down payment on a house. Which is better to tap for a down payment -- a 401(k), a Roth IRA or a Borrowing from a 401(k) to Make a Down Payment.

Your best bet is to tap your 401(k). You can generally borrow up to half of your balance, up to a maximum of $50,000, from the account at any age and for any reason without tax or penalty. The interest you pay on the loan (generally the prime rate plus one or two percentage points) goes back into your account.

Loans from 401(k)s usually must be paid back in five years, but your employer may give you up to 15 years to repay a 401(k) loan if you are borrowing the money to buy a home. Your employer will usually start deducting the monthly loan payments from your paycheck right away.

There is one major drawback to borrowing from a 401(k): If you lose or leave your job, you generally have just 60 to 90 days to pay back the loan or it will be considered a distribution -- and subject to taxes, plus a 10% early-withdrawal penalty if you’re under age 55 when you leave your job.

Taking the money from a Roth for a down payment is your next-best choice. You can’t borrow from the account and return the money to it, as with a 401(k), but you can withdraw up to the amount of your contributions tax-free and penalty-free for any reason and at any age. If you withdraw earnings from a Roth before age 59½, you generally must pay taxes and a 10% penalty; after age 59½, you can withdraw earnings penalty- and tax-free (as long as you have had a Roth IRA for at least five years). But if you’re using the money to purchase your first home, you (and your spouse) can each withdraw up to $10,000 in earnings from your Roth IRAs without the 10% early-withdrawal penalty even if you’re under age 59½. You’ll also avoid a tax bill on that withdrawal if you’ve had a Roth IRA for at least a five-year period. If you don’t meet the five-year test, you’ll owe taxes on that $10,000, but not the 10% penalty.

First-home rules are least advantageous for traditional IRAs. You and your spouse can each take up to $10,000 from your traditional IRAs for a first-home purchase without the 10% early-withdrawal penalty, but the withdrawal is still taxable.

You don’t literally have to be a first-time homebuyer to qualify for the first-time-home buyer exceptions, but you can’t have owned a home in the previous two years. If you already own a home, you can still take the 401(k) loan or withdraw your contributions to a Roth IRA without penalties or taxes, but you won’t qualify for the $10,000 penalty-free IRA withdrawals.

For more information about IRA withdrawal rules, see IRS Publication 590, Individual Retirement Arrangements (NOTE: IRS rules change, please seek the latest rules fro your tax adviser and/or attorney)

Common First-Time Home Buyer Mistakes

1. They don’t ask enough questions of their lender and end up missing out on the best deal.
2. They don’t act quickly enough to make a decision and someone else buys the house.
3. They don’t find the right agent who’s willing to help them through the home buying process.
4. They don’t do enough to make their offer look appealing to a seller.
5. They don’t think about resale before they buy. The average first-time buyer only stays in a home for four years.

How Big of a Mortgage Can I Afford?

Not only does owning a home give you a haven for yourself and your family, it also makes great financial sense because of the tax benefits — which you can’t take advantage of when paying rent.

The following calculation assumes a 28 percent income tax bracket. If your bracket is higher, your savings will be, too. Based on your current rent, use this calculation to figure out how much mortgage you can afford.

Rent: _________________________

Multiplier: x 1.32

Mortgage payment: _________________________

Because of tax deductions, you can make a mortgage payment — including taxes and insurance — that is approximately one-third larger than your current rent payment and end up with the same amount of income.

For more help, use Fannie Mae’s online mortgage calculators.