Bigger is better, right? In some instances, this may be the case but when choosing a home, there are a few factors to consider when deciding how much house you need. Having seen what happened when the housing market crashed, many people are wary to “overbuy” and are being more considerate of what they really can afford. For those with lower incomes or for single buyers, you can still buy, but do you really need a 3,000 square foot home to take care of? Even couples and families are re-evaluating how much space they need and just how much house they want to take on. After all, increased square footage does not just mean an increased mortgage. The bigger the house, the higher utility bills will be as well as increased home owners insurance. CBS Money Watch notes that the average sized home has more than doubled to 2,349 square feet from 983 square feet in the 1950s. You may have more space to spread out but if you are barely able to pay the mortgage on your large house each month you won’t be doing much relaxing in the home. Also, if you buy a large house you then have to clean and maintain that large house. If you are only using the guest bedroom once or twice a year, is it really worth paying to heat and cool that room as well as the time it takes you to clean it? All of these questions certainly depend on your lifestyle, size of family and plans for the future. You may consider that maybe you do not need quite as much space in the home if you have a great yard and spend a lot of your time outdoors. If you love to entertain or have frequent guests, maybe you need a bit more space. It may be tempting to buy a huge home to impress others but ultimately you will be the one living in the home, cleaning the home and paying the bills. You do not need to buy a tiny house that will leave you cramped and desperate for space but consider a smaller home that will save you money and be just as beautiful with its own unique charms.
When selling a home, there will be a point in time throughout the transaction that you will need to sign some paperwork for the Title and Escrow company so they can proceed with the transfer of ownership. During that process, you will be presented with a HUD-1 Settlement Statement showing where all of the proceeds of the sale will be allocated.
On the HUD-1 (Housing and Urban Development), section 1100 defines all title related fees. Line 1101 is the “Settlement or Closing Fee” for the particular title company that’s being used. In most cases, this fee will be split between the buyer and the seller.
Likewise, there’s another line, 1108 which is labeled “Title Insurance.” This is a policy that protects your real estate ownership rights. Should someone down the line have a legitimate claim to your land, then the title company will payout any damages to that person should it come to that. This cost is paid for by the seller. Why is there a number in the buyer’s column? It’s most likely because they opted for additional coverage.
So, why is the seller paying for any of this?
The simple answer? It’s in the default contract. If you review section 3b of the Arizona Residential Purchase Contract, you’ll see on line 104 the following:
“Buyer shall be provided, at Seller’s expense an American Land Title Association (ALTA) Homeowner’s Title Insurance Policy.”
Likewise, in section 3d, line 114 (iv) it states that “Escrow Company fees, unless otherwise stated herein, shall be allocated equally between Seller and Buyer.”
Although these fees are negotiable, they are often not negotiated and most of the time the boiler plate contract stands. So, that’s why, as a seller, you’re being charged half of the escrow fees and the entire title insurance policy. In Arizona, this is very common.
An explanation of the process to expect when you stop paying your mortgage, including information about Trustee Sales in Arizona.
This is a very basic explanation of what financing is in the housing world.
When someone doesn’t have enough money to purchase a good or service, such as a home, they typically look to someone who does who is willing to lend that money to them.
In exchange for the use of someone else’s money, the borrower pays a small premium in the form of an annual interest rate.
For example, at the time this was written, interest rates were found to be around 4% to 5% annually. In other words, if you borrow $100,000 at 4% per year, that means that you will pay your lender approximately $4,000 in interest for the first year.
Your payments each month consist of up to 4 parts which are paid to either the bank you borrowed the money from, or the company that your lender hired to collect your payments (servicer.)
(1) One part is called the principal which represents the amount that you owe, and (2) one part is the interest, which is paid to the lender in exchange for borrowing the money. The (3) third payment is a semi-annual (that’s twice per year) property tax payment. The home owner is responsible for paying those taxes, but in most cases, the lender requires that your payment include enough to cover the semi-annual tax payment, and they end up paying the tax bill for you out of what’s known as an impound account. Sometimes there’s a (4) fourth part, and that’s called Mortgage Insurance. If you purchase home with less than 20% down (in other words, $20,000 in this example), then the lender will require that you pay an insurance premium every month. They do this to ensure that they get paid if you fail to make your payments.
At the beginning, MORE of the payment is interest, and less is principle. As time goes on, the interest paid every month decreases, because it is calculated based on the amount you still owe, which is also decreasing. By the time you reach the half way point, usually 15 years, the amount you pay in interest and the amount you pay towards the loan is nearly the same. Later in the life of the loan, you will be paying much more on the loan, and much less in interest.
This is called amortization (the death of a loan) and lenders do this to ensure that they get most of their investment back at the beginning, rather than at the end.
I can’t stress enough how beneficial it will be to you and your family to only consider 15-year fixed rate loans. Anything else will cost you much more and be much more of a risk to your financial well being.
The Wall Street Journal published a chart that shows how lower interest rates on 30 Year fixed mortgages would affect the monthly payment which I’ve republished here in the table below.
Good news this week brings us lower interest rates down from 6% to 5.5%. When you consider that this is the largest single week drop in interest rates in 27 years then you may see that now is the time to buy.
According to the table, the savings on a lower mortgage rate will outpace the difference in price down the road. In other words, if you wait for the prices of homes to continue to fall at the same time the interest rate increases, the savings you think you’ll realize will be wiped out by the additional interest you’ll pay over time. It makes perfect sense to give more credence to your rate of interest than your potential loss, one of which is known and the other not.
Month after month we’re amazed at how low the rates are. There’s even a buzz about rates going even lower! Can you imagine being able to buy your first home for as much as you’re paying in rent now?
Stay away from the fence and jump to ownership, but remember, only if you are qualified to buy. Don’t try to buy something you can’t afford.