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What Is a Co-op and Is It Right for Me? Here’s Everything You Need to Know

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You’ve finally decided to purchase your first home and you have your sights set on a place in the city! But as you’re contemplating a condo vs. a townhouse, you see a new affordable listing for a housing co-op. It sounds intriguing, but you wonder,  “what exactly is a co-op?” and, secondly, “there’s no way this type of home is even popular.”

It turns out over 1.5 million people in the United States live in a housing co-op, and the concept has been around since the 19th century. Housing co-ops, also known as housing cooperatives or cooperative housing, are an alternative to homebuying where residents own a share of their community-controlled complex instead of actual real estate. While it can provide affordable living and less maintenance, co-ops may be harder to get into, and they can come with quite a few rules and regulations.

So is that co-op right for you? We’ve talked with a veteran real estate agent near a co-op hot spot and scoured pages of research to bring you everything you need to know on the non-traditional process before you jump in.

A table of people discussing issues of the co-op.
Source: (Christina @ wocintechchat.com / Unsplash)

What is a housing co-op?

A housing co-op is a multi-unit tenement or complex where residents jointly own space and control the entire building. Instead of owning your unit outright, you own a share of stock or interest in your building and become a shareholder in the community. So, that means in lieu of a deed to your home — as you would have with a condo or single-family home — you have a membership contract or lease to occupy your dwelling.

Picture a multi-unit apartment building. Instead of all the residents paying rent to a landlord or management company, all the residents own the structure together as part of a corporation. They each own a share of the complex, which gives them the right to their individual unit and all the common areas. The number of shares you get is relative to the size of your unit. That’s essentially what a housing co-op is at a very basic level.

Depending on the co-op’s size, an elected board of directors (made up of residents) may run the complex and provide all the rules and regulations. They also handle all the financials and management operations. Or, if the building is small enough, the residents run the day-to-day activities themselves. Either way, there’s more of a community-centric focus and lifestyle compared to more traditional residences.

Sound confusing? It can be at first, but that’s why it’s essential to know all of your facts about co-ops, including the different types, before making any decisions.

Different types of co-ops

  • Market-rate: One of the more common types of co-op, the buying and selling of these units are just like any other property. You can purchase or sell shares at any price in the market, and you build equity (or make money off a sale) just like a normal transaction with a condo or single-family home.
  • Limited-equity: This is another popular type of co-op, and it’s geared for affordable living. There are more restrictions on the prices at which units are bought and sold. As the name suggests, you can still build equity in these co-ops, but there are more rules you need to follow to keep the prices low for yourself and future residents.
  • Zero equity/group equity/leasing co-ops: A housing cooperative in which the co-op leases (instead of owns) the building. Because the corporation is renting from whoever owns the building, there’s no equity to be built. However, these co-ops are usually still run the same way as the other types.

Where are co-ops found?

Housing co-ops are found throughout the U.S., but they are most commonly located in the Rust Belt; major cities, such as San Francisco and Fort Lauderdale; and the Northeast. In fact, New York City itself accounts for about half of all the housing co-ops in the country, according to Co-operative Housing International.

While most co-ops are mid-rise or high-rise building complexes, a housing cooperative can take any shape and form. Here’s a look at what you might find.

A board of directors interviewing a potential co-op member.
Source: (LinkedIn Sales Solutions / Unsplash)

What’s different about buying a co-op?

Like a co-op lifestyle may be different from other housing developments, so is the purchase process. The most significant difference is there’s usually an application required to get in. But before you have flashbacks to your college entrance process, let’s take a closer look at the timeline you can expect to see.

Home search and offer

This step is actually pretty standard, but it’s important to work with a real estate agent who has experience with co-ops. They will be invaluable during your home search, guiding you through what questions to ask and how different co-op boards of directors compare to each other. As for the offer, it’s similar to the process in condos and single-family homes as well. You’ll need a pre-approval letter if you’re getting a share loan (more on this in a minute), and you will gather all necessary documents (offer letter, purchase agreement, etc.) alongside your agent.

If your offer is accepted, be prepared to put together an extensive package of documents, including information on your financial and housing history, for board approval.

Co-op application

The exact process to get into a housing co-op will vary, depending on the cooperative itself and your location. However, there’s usually an extensive amount of paperwork where you’ll have to provide many personal details. After that, you’ll also be asked to interview with the co-op’s board of directors.

The interview could range from a simple formality to a lengthy back and forth, but remember, the board just wants to make sure you’ll be a good fit for the community, and you know exactly what’s required for the cooperative. Some example questions they might ask:

  • Why you want to live in the co-op or that location
  • What your employment history is and if your job is secure
  • What your finances and financial history look like
  • If you plan to have guests over frequently
  • If you plan to make any renovations to your unit
  • If any hobbies or lifestyle habits might cause issues in the building
  • Questions to make sure your application and interview line up

The board may have legal grounds to reject your application based on financial issues, employment troubles, or even an unwillingness to follow the rules and regulations. However, since the Fair Housing Act, they can’t reject you based on age, race, sex, familial status, disability, or other discriminatory factors.

Overall, the board of directors wants to make sure you’re going to mesh well with the other residents, and you’ll pull your own weight. Plus, this is a great opportunity for you to figure out if the co-op — and it’s management — is a good fit for your needs!

Financing a co-op

You’re through the application, and you have all green lights to purchase your shares in the co-op (woohoo!). Now there are a few things to know about financing.

It’s not much different from buying a conventional property. However, you’ll have to get a co-op mortgage loan, also known as a share loan. These allow the purchaser to buy shares of the cooperative instead of buying the property itself.

It’s important to note that not all lenders provide these loans. If they do, you might be limited to purchasing in a market-rate co-op. This is because it’s easier for the bank to base the value of the loan on your market-based purchase price (as opposed to limited-equity co-ops, where the purchase price is capped).

The initial steps to receive a share loan are pretty standard. The lender will look into the details of the co-op, including the building’s age, size, management, and recent sale prices. They’ll also dive into its finances, examining the co-op’s cash reserves as well as the underlying mortgage (if it has one).

For the purchaser there may be a little more work, says Ed Verdel, a New Jersey-based real estate agent with over 11 years of experience. He says some co-ops or loan providers may require a 20% or more down payment before a purchase, and you might have to prove you have more cash in savings. On top of that, there might be more strict requirements on your debt-to-income ratio.

“Financially, it’s a little bit harder to get in than it would be into any other sort of purchase,” Verdel says.

This is also a good time to look into the co-op’s monthly fee, usually known as a maintenance fee. This can be higher than traditional condo associations, says Verdel, and it may be a burden. However, the fee covers communal expenses (repairs, landscaping, taxes, etc.), so that means you won’t have to do any of the work outside of your unit.

There also might be an underlying mortgage on the building itself, which the cooperative takes care of. If so, you might be responsible for a share of the cost, which adds to the maintenance fee.

A mailroom inside of a co-op.
Source: (Natalie Runnerstrom / Unsplash)

Living in a co-op

A housing cooperative may be right up your alley, or it could be the farthest thing from what you’re looking for. To find out, let’s take a look at some of the advantages and disadvantages.

Advantages

Affordability

One of the most significant advantages of a co-op is its affordability, especially in limited-equity types. These co-ops provide affordable housing to low- or middle-income homebuyers and allow buyers to purchase in an area that might be out of reach going the conventional route.

Even outside limited-equity co-ops, the purchase price is usually lower for other types of co-ops since they might not have the amenities you find elsewhere. On top of that, you’ll save money on closing costs. You won’t need to pay for all the same fees as in a traditional transaction, like title insurance or a mortgage recording tax.

Another plus: You won’t have to pay expensive, individual real estate taxes like on a condo or single-family home. Since the building is owned by the co-op, the complex is taxed as a single unit; you’ll just have to pay a share of the bill, which is included in the maintenance fee.

Community-focused

When you purchase a co-op unit, you’re investing in a community. Everyone has a real stake in their building. That means you’ll get to know your neighbors well, and you’ll have a real say in the operations of the cooperative.

Plus, because the vetting process is so detailed and requirements are so strict, co-ops are usually more financially stable. If it’s well-run, the cooperative will most likely have a larger reserve fund, and their owners are less likely to go into default in down markets. That was the case in 2007, when the Great Recession didn’t hit co-ops as hard as other real estate properties.

Less maintenance

Since co-ops are so community-focused, everyone pitches in. Maintenance fees cover all the communal expenses, and you shouldn’t have to worry about repairs, security costs, landscaping, and other maintenance woes, at least in the common areas. That means one less thing for you to worry about in homeownership, which may be especially great for older buyers.

In smaller co-ops, you might still be responsible for some communal maintenance, but if so, your fees will be lower.

Disadvantages

Harder to get into

We’ve already mentioned the application process and interview necessary to buy into a co-op. This can not only put people off but also drastically limit the types of buyers able to get into a co-op. The financial requirements are strict, and everything from debt to employment history to your savings is looked at in detail.

There’s an estimated rejection rate of about 3% to 5% in co-ops, according to The New York Times. That might not seem like a lot, but, remember, that’s already after the seller accepted your offer.

More restrictions

Just like an HOA comes with rules and regulations, a co-op comes with them too — and then some. Many housing cooperatives have strict rules and bylaws to ensure everyone is comfortable and the co-op operates without issues.

Verdel says the exact restrictions depend on the co-op, but it could range from the inability to rent your unit to board approval for renovations to approval for certain pets. It’s essential to carefully review the bylaws and regulations before completing your purchase to make sure it won’t affect your day-to-day living too much.

High fees

Verdel says he gets clients all the time who are excited about a low-priced co-op they’ve seen. However, he cautions them to take a hard look at the maintenance fees. This fee might include communal expenses, management costs, taxes on the building, utilities, and any other board-approved costs.

It can get expensive, too. For example, the average maintenance fee for a co-op in New York City is $1,500 a month. Multiply that by 12, and you’re looking at $18,000 a year in maintenance costs. That’s more than double the typical annual costs for conventional home maintenance.

A bed in a co-op building that you can buy.
Source: (Andrea Davis / Unsplash)

Before you purchase

As with any purchase, it’s important to ask the right questions before investing your money in a co-op. After all, they’ll most likely interrogate you before you’re accepted, so it’s only fair to ask them for some information.

Verdel says it’s good to ask what precisely the monthly fee is (and what it includes) and what the sale history looks like in the community.

“[You’ll] want to know that upfront just to see if it’s been increasing in value over time or if they’ve been depreciating in value over time,” Verdel says.

Some other important questions to get answered:

  • How is the cooperative managed?
  • How active is the board of directors, and do its members have the relevant experience to manage a co-op?
  • Is there an underlying mortgage? If so, what does each shareholder pay toward it?
  • What are the rules and regulations?
  • Are there other additional fees to be aware of?
  • Are there renovation restrictions?
  • Are there pet restrictions?
  • What is the community/resident engagement like?

These are only a few of the questions you might ask during your co-op search, and each process is different. After getting all the relevant information, you might find more traditional housing is a better fit for you. Or you’ll learn a housing co-op is the type of living situation you never knew you needed.

Header Image Source: (Jimmy Chang / Unsplash)

How to Buy a House With No Money Upfront: 9 Ways To Make It Happen

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For first-time homebuyers, the down payment is often the biggest barrier to homeownership. A lot of us went through the post-college days where we ate ramen every night, shopped the clearance bins, and went to the dollar theater while getting on our feet. But even if you pinch pennies, it’s often not enough to save up for a home.

In many parts of the country, saving a large sum while also paying rent can be difficult. But if you’ve been stuck on that 20% down payment amount, there’s good news!

Chiquita Pittman is an experienced agent in New Jersey who works with 7 more townhomes and 21 more condos each year than the average agent in her area. She also conducts monthly webinars for first-time homebuyers with the New Jersey Housing and Mortgage Finance Agency and the Puerto Rican Action Board.

She says that through combining state programs and with the seller paying closing costs, she had one buyer who “only had to bring $3,500 to the table.”

If buying a house with little to no money sounds good to you, read on for our nine tips on how to get it done.

Cash used to buy a house.
Source: (Live Richer / Unsplash)

How do you buy a house with no money?

For most borrowers, you’ll need money for the down payment and closing costs. To lenders, this demonstrates that you’re willing to invest in the home, making you a key stakeholder. It also reassures them that you are less likely to stop making payments on the loan, sending the home into foreclosure.

However, for many homebuyers, 20% down on hundreds of thousands of dollars is out of reach. While some mortgages allow you to put between 3% and 5% down, you need to know where to look.

There are also some zero-down programs that exist, plus other creative ways you can buy a house without having a lot of money in the bank.

Are you enlisted in the military, a veteran, or surviving spouse?

Then a Veterans Affairs loan is probably going to be your best bet.

The VA either guarantees the loan or lends directly so that you don’t have to put anything down on a house. There are two VA loan programs to help you buy a house:

  • Purchase Loan: No down payment as long as the loan isn’t higher than the appraised value of the home. You will pay a funding fee and closing costs.
  • Native American Direct Loan: If you’re a member of a tribe that has an agreement with the VA, you can borrow with no down payment and limited closing costs, at a rate of 2.75%, and only pay the funding fee.

The VA bases your funding fee upon both the percentage amount of your down payment and the loan amount. For example, if you put down less than 5%, you’ll pay a funding fee of 2.3% of the loan’s amount. If you’re borrowing $200,000, the funding fee will be $4,600.

Another big plus of a VA loan is that you don’t have to pay mortgage insurance. Mortgage insurance, or MI, protects the lender if you stop making payments on your mortgage loan. If you have less than a 20% down payment with a conventional loan, it’s likely that the lender will require MI. Because the VA guarantees a VA-backed mortgage, lenders waive this requirement.

Rates are competitive, but you must meet certain requirements. The VA-approved lender will set the credit score limits and maximum debt-to-income ratios. You will also need to obtain a Certificate of Eligibility or “COE” from Veterans Affairs, and don’t forget about the funding fee!

Do you make around a median income for your area?

The US Department of Agriculture offers loans for borrowers in rural areas. Before you assume that you have to buy a farm, check their coverage map for lending areas. Their coverage map can (and does!) overlap with some homes in the suburbs.

A USDA loan might be a good option for you if you don’t make significantly more than the median income for the county where the home is located (usually that’s no more than 115% of the county average). This limit varies by location, helping less affluent borrowers in expensive states afford a home. When modified by payment assistance, your interest rate could be as low as 1%.

You can put 0% down and not have to pay monthly mortgage insurance on these loans, either. Lenders place credit score and debt-to-income requirements on the loan, but the USDA also has the following requirements for the property you’re buying:

  • You must live full-time in the home.
  • The home’s square footage must be 2,000 square feet or less.
  • The home’s market value can’t exceed the applicable loan limit for your area.
  • Your debt-to-income ratio can’t exceed 45%.
  • The home can’t have an in-ground swimming pool.
  • The home can’t be designed for income-producing activities (such as a duplex).
A fire truck near a house you can buy with no money.
Source: (C. DLR / Unsplash)

Are you qualified as a ‘Good Neighbor’?

Firefighters, K-12 teachers, law enforcement professionals, and people in other specialized careers might be eligible for HUD’s Good Neighbor Next Door, or “GNND,” program.

When HUD acquires ownership of an eligible home in a revitalization area, they list those homes for 50% of the market-value price. However, they’re exclusively open to GNND borrowers for the first seven days, so you’ll have to stay on top of their listings to snag one. If more than one qualified borrower applies for a property, you’ll be entered into a random lottery, and HUD will pick the applicant who gets the house.

You can put down as little as $100 … so not exactly nothing, but pretty close! HUD requires that you sign a second mortgage for the amount of the 50% discount, but there’s no interest charged on this “silent note,” and you don’t have to make payments on it. After three years of living in the home as a primary residence and making on-time payments, they’ll forgive this second mortgage.

What are the requirements?

  • You have to be occupied in one of the approved careers (firefighter, K-12 teacher, or law enforcement professional) when you buy the house.
  • You have to live there as the owner-occupant for at least three years.
  • If you find a home you like, you have to submit your interest in purchasing it to HUD.
  • Lenders set debt-to-income and credit score limits.

Can you combine assistance programs?

If you qualify for multiple down payment assistance programs, you could combine them to make up a larger down payment. Many of these programs don’t have restrictions that prevent you from lumping the grants together. In Pittman’s work with the NJHMFA and PRAB, she frequently helps homebuyers combine programs.

“From the state, there’s a $10,000 grant,” she says.

“If they stay in the property for five years or more, they don’t have to pay it back.”

Buyers can then combine the state grant with a $5,000 grant to first-time homebuyers from the PRAB. That makes a total amount of $15,000 for a down payment. Keep in mind that some of these programs require you to bring some money to the table, which the grant will then match. You likely won’t have to pay the grant back, but you might have to put down an equal amount to the grant.

Talk to an agent to get a referral to a lender in your area who is experienced with combining assistance programs. If you are a member of a special group, see what nonprofits offer help to purchase a home. If you qualify for more than one program, it can be a great way to make up a larger down payment.

Do your loved ones have the resources to give you a monetary gift?

If you’re struggling to save up a down payment, a family member or loved one might be able to help. You can use gifts for down payments with many loan products, including both an FHA 3.5% down loan, or a conventional loan (3% minimum down).

In 2020, Pittman saw a first-time homebuyer’s kids give their mom their stimulus checks. With this gift, “they were able to buy a house for the first time with little money down,” she says. Pooling resources within the family is a great way to build a future for all family members.

Do you qualify for closing cost assistance?

Programs in different states can help with closing costs, so it’s worthwhile to explore that possibility before you write an offer on a house.

If you’re looking for what your state offers, try searching Google for “your state + department of housing and urban development + closing cost assistance.”

A conference room where you can buy a house with no money.
Source: (Brusk Dede / Unsplash)

Can you get the seller to help with closing costs?

In a buyer’s market, it’s not uncommon for sellers to pay for some or all of a buyer’s closing costs. Closing costs typically run between 2% to 5% of the purchase price, so you could save several thousand dollars. A good agent will help you negotiate closing costs during the offer period.

Pittman did a deal last year where the seller paid some of the closing costs, but she cautions that “If it’s a competitive market, it’s hard to get that done.” Since some government-sponsored loan programs limit the amount of closing costs that a seller can pay, check with your lender.

Would the seller consider financing the purchase?

Seller financing is an unusual solution, but it could work. With seller financing, the seller extends a private mortgage. It can be done through a rent-to-own agreement, or the seller might be able to work out a payment plan with you.

In some cases, you still have to put money down and could forfeit that deposit if you default on the agreement’s terms. Often, you’ll agree to a purchase price in the future. You’re taking the risk that if the property goes down in value, you still have to pay the agreed-upon price.

If you decide to go this route, make sure you get lots of good legal advice!

Kelly Springer, a partner at the firm Willenbring, Dahl, Wocken, & Zimmermann, has handled many contract-for-deed transactions. She says that they’re, “Really good for a buyer who can’t get traditional financing when they want to get a property.” But you’ll want to have a lawyer look over the rent-to-own contract to make sure it covers who pays for repairs, whether your monthly payment includes property taxes and insurance, and the interest rate you’ll pay.

She cautions that since these deals are more frequently done for buyers with poor credit, the seller is “going to charge a higher interest rate than what the market would do for a mortgage.” While this is one way to become a homeowner, you might be better off waiting to buy until you’ve improved your credit score and saved a larger down payment.

A welcome mat in front of a house bought with no money.
Source: (Andrew Neel / Unsplash)

Could you take over the seller’s mortgage?

In some cases, the seller might agree to sell the house “subject to” the terms of the current mortgage on the house. If they have an assumable mortgage, they can sign it over to another person.

This usually requires a small down payment. The mortgagor will still review your credit, and you must meet their income requirements.

With some creativity, most homebuyers can reach the day where they’re holding the keys to their first home in their hand. If you take some time to research programs in your state and work with an experienced agent and lender, your homeownership dreams can come true sooner than you think!

Header Image Source: (HiveBoxx / Unsplash)

I Want to Buy a House in 2021. How Much Should I Offer Over the Asking Price?

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Your budget is $300,000. You see a house you love, and it’s listed at $300,000. Perfect match, right?

Not so fast.

If you’re looking to buy in 2021, then you already know that the market is white-hot. Home sales have skyrocketed, and home inventory is historically low. That means it’s a prime seller’s market — and a potentially tough go for hopeful buyers.

Many would-be buyers around the country can expect to offer above asking price on a home in order to be serious contenders. And that means that buyer with a firm $300,000 budget may in fact be priced out of a home at the exact list price… one that’s destined to get 12 contingency-free offers and sell for $325,000.

Real estate is a highly local game, but these scenarios are playing out all over the country. What might a buyer expect to pay over asking?

“There are so many variables, but if they’re jumping into a beautiful, polished home with all the finishes in a hot market right now, they could expect 5% to 10% over asking price all day long,” explains James Strum, a Richmond-based agent who works with 86% more single-family homes and sells properties 16% faster than the average agent in the Richmond, Virginia area.

A hot market also means that homes go fast — and that’s a lot of pressure for buyers who know they’re racing against the clock when coming up with a competitive offer that also makes sense as an investment.

So how can you be prepared to pounce with the right offer over asking price when you see that dream home hit the market? Our expert-backed guide is here to help.

A woman researching how much she should offer over the asking price.
Source: (Jodie Cook / Unsplash)

How much should I offer over the asking price?

The answer to this question rests on many variables.

“It all depends on the pricing of the home and if it’s already appropriately priced or overpriced,” Strum says. “The second part is the buyer, who ends up determining how much they want to overpay for the property in this crazy elevated seller’s market.”

So while there’s no uniformly applicable answer to this question (sorry!), you must do your homework on both the market and your personal financials. All of that intel will guide you to the right offer. Here are 7 tips for getting there.

1. Know your budget backward and forward

When home shopping in a hot market, you have to do your legwork to be competitive. Know your budget — not just the ballpark, but the actual top end of your total possible spend, given your savings and other resources.

2. Get preapproved for a mortgage

In a hot market, a seller is unlikely to really consider your offer if you aren’t already preapproved for a loan.

A step up from pre-qualification, preapproval often means the lender gives conditional approval, stating the size of the mortgage you’ve been preapproved for (though what constitutes a “preapproval” can vary from lender to lender). Since sellers always want to choose the strongest offer possible, they want to feel confident the deal won’t fall through if the buyer can’t secure appropriate financing. (This is why sellers love to see all-cash offers.)

Strum says he’s actually working with buyers to get fully underwritten before even looking at homes.

“Therefore we’re giving them a leg up where they could compete against all-cash offers or the average agent that’s just getting the basic pre-qualification,” he says. “It propels them in contract negotiations” because the financial underwriting is complete. (If you’re looking for a lender that does pre-underwriting as part of the approval process, then we should inform you: HomeLight Home Loans is one of them!)

3. Talk to your agent about the market

Ask your agent about comparable recently sold homes (comps) that can be used to benchmark against the house that looks like a good fit for you.

Ask your agent specifically about list-to-sales-price for those comps — how much the house was listed for and how much it actually sold for in the end. All of this data will help point you to the right offer amount.

Again, real estate is a highly local enterprise. You’ll want to find an agent who’s highly experienced and well-versed in the specifics of your local market.

“We have more agents than we’ve ever seen in the marketplace — there are a lot of brand-new agents who will incorrectly coach their clients in this very tricky market,” Strum says.

“It’s very important in this market to have a seasoned agent who has local expertise and the experience to walk the client through everything, from top to bottom.”

He adds, “Any seasoned veteran agent would tell their clients when it’s time to stop pushing the envelope any further. The question that we pose to all of our buyers is: How much are you willing to overpay in this market?”

4. Shop under your maximum comfortable mortgage amount

Let’s go back to that example of the buyer with a $300,000 budget eyeing a home listed at $300,000.

If offers come in above the asking price for this home, then the buyer won’t have a chance to keep up.

That’s why you should shop for homes listed under your maximum comfortable mortgage amount. This strategy will ensure that if you do need to offer over the asking price, you’ll at least be preapproved for the full amount (though your lender still might balk after the appraisal — more on that later).

An image of a house to demonstrate how much buyers should offer over the asking price.
Source: (Cole Parrant / Unsplash)

5. Consider what else might sway a seller besides price

Yes, money is important. (Very important!) But it’s not the only factor that will set your offer apart.

Think about what else a seller might want as a way to sweeten the deal. Your agent can help you figure this out.

For instance, when sellers sell their home quickly, they might need a place to stay to bridge the time before finding a new place to live. If this is the case, you can offer a rent-back arrangement, allowing the seller to stay in the home as a renter for a specified timeframe after closing.

Beyond that, think about how much you can put down. Can you offer a larger down payment? Can you offer more earnest money — a good-faith deposit to show you’re a serious buyer — as a way to entice the seller? Can you even pay in cash?

Can you eliminate contingencies? These days, “the winning offers that we’re seeing in this market are doing an inspection for informational purposes only,” Strum says.

Remember, if you’re financing the purchase, you might not be able to eliminate some contingencies. At the very least, your lender will require an appraisal or financing contingency written into the purchase agreement.

6. Work with your agent to determine your offer price

With all this in mind, you’re ready to work with your agent to write your offer.

In some cases, you can set yourself up for success with an escalation clause. This means your offer price will automatically escalate higher than any competing offers, typically in pre-specified increments, up to a limit that you decide. While this can be a good tool in a hot market, it won’t always apply, Strum says.

“An escalation clause says, ‘I’m prepared to give you X number of dollars but you need to show me that next-highest offer in order for me to go that high,’” he explains.

“About 50% of the time, we’re seeing sellers who won’t allow escalation clauses. People are just going so far above the asking price, and it’s an emotional time. When agents specify, ‘no escalation clauses,’ it really gets that buyer thinking — and oftentimes, they’re offering higher than they probably would have if they were allowed an escalation clause.”

7. Be prepared for a possible low appraisal

An appraisal contingency is commonly found in real estate contracts. It allows the buyer to back out of the deal if the home doesn’t appraise at the purchase price. But in a particularly hot market, it may make sense to waive the appraisal contingency in an effort to get your offer accepted.

If you and your agent decide together to go this route, prepare yourself for a possible low appraisal — because it could mean you’ll have to pay more out of pocket to close the deal.

“Now you’re going to be bringing that much more to the table as far as cash to bridge the difference on the shortfall of the appraiser,” Strum says.

He cites this example: Let’s say you’re offering $550,000 for a house listed at $500,000. Your down payment is $110,000. If you waive the appraisal contingency, and the house appraises at $510,000, then you’ll most likely have to pay the $40,000 difference yourself. If you decide to divert some of your down payment money toward paying the appraisal gap, you could end up increasing your loan-to-value ratio. (That’s the ratio between the amount of your home loan and the property’s total value, typically expressed as a percentage.) The higher that percentage is, the higher the assumed risk by the lender — which means the conditions of your mortgage loan could change.

In this example, you might use some of the money you set aside for a 20% down payment to help you bridge that $40,000 difference, which means that your down payment is now $70,000, or 13.7% of the property value. Your loan-to-value ratio has increased, from 80% to 86.3%. As a result of the smaller down payment and higher loan-to-value ratio, you’ll now be paying mortgage insurance on the loan, and you may have to pay a higher rate while you’re at it.

If all of this sounds daunting… well, it is. Buying in a hot housing market can certainly be nerve-racking. But if you’ve done all of your homework and come in fully prepared to write a standout offer, you’re well on your way to scoring that home and building your personal wealth.

Header Image Source: (fizkes / Shutterstock)

The 35 Steps to Building a House: Your Start-to-Finish Guide

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This is it — you’re finally making the move to build your very own house, and you couldn’t be more excited! It’s a huge decision, and it’s not one you’ve taken lightly. But do you know what goes into building a house, start to finish?

If not, don’t worry — we’ve got you covered. We’re going to break down all of the steps of building a house and break down what percentage each job costs out of your budget.

We have a lot of ground to cover, so grab a snack!

A contractor saws through a wooden beam working on the steps to building a house.
(Source: Greyson Joralemon / Unsplash)

Step 1: Find and purchase the lot

The very first step to building a house is buying the ideal plot of land for your new dwelling.

Think about where you’d like to build. Do you want to live in the country with a large yard? Do you want to build a house in a growing development with a developer? Does the land already have access to utilities like water, sewer, and electricity?

Unfortunately, you can’t buy any old vacant lot — it must adhere to zoning ordinances where you want to build. Common zoning designations include:

  • Residential: Areas designated for single-family homes
  • Commercial: Areas designated for businesses like restaurants, retail shops, and so on
  • Industrial: Areas designated for factories
  • Rural: Areas designated for farming
  • Historical: Areas designated for the preservation of historical landmarks or buildings
  • Environmental: Areas designated for the protection of natural habitats
  • Aesthetic: Structures must adhere to a certain “look” as outlined by zoning codes

Step 2: Research the type of house you want

There are three types of builds available; spec homes, tract homes, or a fully custom home.

Spec (speculative) homes

Spec homes are single-family homes that are built in a development with no particular buyer in mind.

If you go under contract early enough on a spec home, you may be able to choose some features like flooring, paint, kitchen appliances, and other finishes.

Tract homes

Tract homes are when a developer buys a large plot of land and divides that land into individual lots. They’ll then construct homes from specific architectural options planned for that community.

Tract homes could include single-family homes, condos, or townhomes.

Custom homes

A custom home is where you have your own plot of land and hire a builder to build a house exactly the way you want it.

Russell Wing, a top-selling agent who has sold 83% more single-family homes than the average agent in Union County, North Carolina, shares insight on the benefits of a custom home.

“It’s easier to build a custom because you have more choices. You can build the house from the bottom up and in the way you want — you’ll have to pay accordingly. With a spec home, your options are limited. Contractors may only offer shades of white or certain cabinets. They’re basically cookie-cutter homes.”

Regardless of which type of home you want, you’ll want to look at the different floor plans available. Consider things like:

Step 3: Research and hire the building team

Building a home is a huge project, and the average build will involve 22 subcontractors working on the home.

The first person you’ll need to hire is the general contractor or a custom home builder. They will oversee the construction of your home from start to finish. Their duties include:

  • Getting estimates for labor and materials
  • Vetting and hiring subcontractors (some will have a team of subcontractors they generally work with and will hire an outside subcontractor for electrical and plumbing work)
  • Assigning tasks to subcontractors
  • Making sure the team meets deadlines

Note: Custom home builders and general contractors are not the same thing, but they are very similar. A custom home builder draws up blueprints for the home and specializes in custom homes, whereas a general contractor does not.

Step 4: Get the required permits from the township

Before construction can begin, your contractor will contact your municipal office and discuss your plans. They’ll know what permits are necessary and they might already have a relationship with the municipality, which could help speed up the process.

Permits you will need could include:

  • Building permit ($1,200 to $2,000)
  • Electrical permit ($10 to $500)
  • Plumbing permit ($50 to $500)
  • HVAC permit ($250 to $400)
  • If a grading permit is needed ($100 to $1,000)

If you’re on a budget, you could get the permits yourself, but then you’ll be considered the contractor, and you would be liable if there’s a problem during construction or inspections.

Warning: Do not, under any circumstances, begin construction before obtaining permits! If the city learns that you do not have a permit, you could face increased fees to obtain the proper permits, and you could have to shut down construction until the permits are obtained, or even tear down work you’ve already completed.

Step 5: Clear the property

During this step, a professional land-clearing team will remove any debris, vegetation, trees, brush, and rocks within the intended build site.

When trees, shrubs, and bushes are removed, the team will also begin removing stump and root systems to prevent re-growth.

Note: If there are a lot of trees that need to be removed, you may have the option of selling the trees to a commercial logging company so they can be repurposed and turned into lumber.

Step 6: Level the site

Once the land is cleared, the clearing team will fill in any holes and level the ground. Then, the team will put up wooden stakes to market out where the foundation should be poured.

If the land has dips or hills, these will be graded to make sure there’s a flat surface to accommodate the house and driveway.

Step 7: Prepare the land for the foundation or basement

Using the wooden stakes as a guide, the team will dig holes and trenches for the foundation, utilities, and septic system if applicable.

Step 8: Install footings

Footings can be made from concrete or brick masonry and are most commonly used with shallow foundations because it distributes the weight of vertical loads directly to the soil.  Footings are generally wider than the foundation itself and sit one foot below the frost line (the typical depth at which the soil freezes in your climate).

Footing drains will be constructed so that water drains away from the house and protects the drains from damage.

Step 9: Pour the foundation

With the footings in place, your home will have either a slab foundation, a crawlspace, or a full basement poured or constructed.

The concrete will go through a curing process to reach maximum strength. This can take anywhere from 28 to 60 days, but depending on weather conditions, the building can resume after one week.

Regardless of the type of foundation your home will have, it will have to be waterproofed.

A builder measures the gaps between beams as part of the steps to building a house.
(Source: Callum Hill / Unsplash)

Step 10: Install drains, sewers, taps

Once the foundation has cured, drains, sewer lines, water taps, and other plumbing that is needed on the first floor will be installed. Then, the contractors will fill in the trenches surrounding the foundation with excavated dirt.

Step 11: Have an inspection done on the foundation

After the footings, foundation, plumbing, and electrical basics have been laid, there will be an inspection to make sure the foundation was done correctly and follows local code requirements.

Some things the inspector will look at typically include:

  • The footing’s width, depth, and condition
  • Waterproofing
  • Grading
  • Reinforced bars

Step 12: Build the frame of the house

Once the inspector gives the project the green light, next comes the framing.

This is where you’ll finally see your home take shape. The framing crew will erect lumber for the walls, flooring, ceiling, and roof trusses. This step could take between one and two weeks to complete.

Step 13: The sheathing is applied to exterior walls

The sheathing is the large sheets of wood, oriented strand board, wafer board, or exterior gypsum that’s nailed to the frame. It’s recommended to use half-inch panels to give the structure more strength.

In some cases, insulation sheathing (rigid foam or cellulose-fiber panels) may be used to improve insulation. This type can be attached directly to the studs, below the wood sheathing. It could also be attached on top of the wood sheathing.

Next, the sheathing is covered with house wrap, a protective cover that prevents moisture from seeping into the underlying wood, preventing mold and wood rot.

Step 14: Install windows and exterior doors

With the sheathing attached to the bones of the house, the windows and doors can be installed.

When you’re shopping for windows and doors, look for energy-efficient windows with the Energy Star label. Energy-efficient windows and doors will help lower energy costs by keeping the temperature indoors consistent, no matter the temperature outdoors.

Step 15: Install HVAC system

The HVAC technician will come in to install ductwork throughout the house. The air handler, condenser, and trim work will be installed as well.

Step 16: Rough plumbing

A plumber will come in and run pipes to the bathrooms, kitchen, and laundry room. They will also install sewer lines, vents, and bathtubs.

This step can be done while the doors and windows are being installed.

Step 17: Have an inspector evaluate the new plumbing

Although a licensed plumber may have done the work, an inspector will have to come in and inspect the work to make sure everything is done correctly.

The inspector will look for leaks and will ensure that the drains, sewage, and vent pipes pass a pressure test.

Step 18: Install electrical wires and panels

This stage is when all of the electrical work is done.

The wires are run through the walls and ceilings. The HVAC is hooked up (including the thermostat), and the fans, lights, electrical outlets, external electrical work, and the circuit breaker are also hooked up and ready to go.

Step. 19: Get an HVAC and electrical inspection

Once the HVAC and electrical work are complete, an inspector will come out and make sure these systems work properly and are completed to code.

A builder constructs the framing, which is one of the steps to building a house.
(Source: Josh Olalde / Unsplash)

Step 20: The roof is put on the home

The sheathing for the roof is generally done when the exterior sheathing is attached to the walls.

During this stage, the roof will be completed. Roofers will install the flashings and asphalt shingles — but other materials may be used, such as clay or concrete tile, slate, metal, or wood.

Step 21: Insulation is installed

The type of insulation your home will need is going to depend on your location.

Usually, insulation is applied to interior walls, the attic, basement, crawl space, and exterior walls (if it wasn’t applied before the sheathing).

The most common types of insulation are fiberglass, cellulose, or foam spray insulation.

Fiberglass insulation is used in unfinished walls, floors and ceilings. It comes in rolls and is installed in-between studs, joists, and beams. The average cost for fiberglass insulation is between $0.64 to $1.19 per square foot.

Cellulose insulation is used in existing and enclosed walls, or new open cavities in the wall. This insulation can be used in unfinished attic floors and other hard to reach places. This type of insulation can be poured, but is usually blown into place using special equipment. The average cost of cellulose insulation is between $1.00 to $1.50 per square foot.

Foam spray insulation is much like cellulose insulation, as it can be applied in enclosed, existing walls, new wall cavities, and unfinished attic floors. It is applied using a spray container (for smaller areas) or a pressure spray product (for larger areas). The average cost of foam spray insulation is between $1.50 to $4.90 per square foot.

Step 22: Drywall is hung

Drywall is hung throughout the interior of the house, as well as on the ceiling.

Step 22b: The walls and ceiling are textured

After the drywall is hung, a texture may be sprayed on the drywall. Then the walls are primed so they can be painted.

Step 23: Walls are painted

We’re nearing the final steps to building a house!

At this stage, the walls will be painted, and it’ll start feeling a little more like your home.

If you’re going with a spec or tract home, you may not have many choices in paint color, but if it’s a custom home, you could have your choice of colors, or even have wallpaper put on the walls.

Step 24: Exterior finishes are installed

There are different types of siding that can be applied to your home.

Vinyl siding is the cheapest siding material ($4.50 to $12.50 per square foot) and the most common material used for spec and tract homes. However, if you’re going custom, other options include:

  • Wood ($8.50 to $14.50 per square foot)
  • Fiber cement ($8.50 to $14.50 per square foot)
  • Stucco ($7.50 to $14.00 per square foot)
  • Brick ($10.00 to $20.00 per square foot)
  • Metal ($7.50 to $25.00 per square foot)
  • Stone ($11.00 to $35.00 per square foot)

Step 25: Flooring is laid throughout the house

Once the paint has dried, flooring is laid throughout the house.

Sometimes you won’t have a choice what type of flooring you’ll get if you’re going with a spec or tract home; however, with a custom home, the sky’s the limit!

Step 26: Window sills and trim are completed

When the flooring has been laid, next comes the trim.

Trim will be installed around the windows and doors, along the floor, and if you choose, around the ceiling, too (that’s called crown molding and can add a sophisticated look to any room).

Step 27: Cabinets and vanities are installed

Vanities and cabinets are the next things to be installed in your home.

Spec and tract homes typically come with builder-grade cabinetry, which is the most basic (and affordable) type of cabinetry you can get that still looks good.

You can opt for higher quality cabinets and vanities, but that will affect your budget. Custom cabinets can cost between $500 to $1,200 per linear foot!

Step 28: Light fixtures, outlets, and switches are installed

After the electrical work is finished, light fixtures, outlets, and switches are hooked up.

These features can be customized to match your personal style, but you can also opt for plain white ones and upgrade down the road if you choose.

Step 29: Countertops and appliances are installed in the kitchen

Countertops and appliances are the next things to go in. There are a variety of countertops you can choose from, but the most popular include:

Tile is installed in the kitchen, one of the steps to building a house.
(Source: Charles Deluvio / Unsplash)

Step 30: Bathroom fixtures are installed

Bathroom fixtures such as faucets, showerheads, toilets, heat register covers, and other features are added during this phase.

Step 31: Mirrors are hung

Along with bathroom fixtures, mirrors are hung in the bathroom and other spaces, including walk-in closets, bedrooms, and workout rooms (if in a custom home).

Step 32: Landscaping and hardscaping is completed

You took so much care into what goes in the house; you can’t forget about the exterior!

A professional landscaper can come in and lay down sod, plant trees, or flowers. They’ll install walkways, build decks or patios, create garden walls, and so much more.

This is your chance to make your yard an oasis that leaves your neighbors green with envy!

Step 33: Final home inspection

The final home inspection is where a home inspector looks over everything.

They’ll double-check the plumbing, electrical, and HVAC systems. They’ll inspect doors, windows, the foundation, the roof, and more. If the structure passes the inspection, they’ll give you a certificate of occupancy, which means it’s inhabitable and safe to live in.

If there are any issues, another inspection may be required after those problems have been fixed.

Step 34: Final walkthrough

The final walkthrough is your opportunity to go through the house and make sure everything is as you requested.

You’ll want to pay close attention to the details and take note of anything that isn’t what you discussed or approved with your contractor. You’ll also want to look for any signs of damage that may have occurred during the final stages of construction, such as gouges in countertops, dented or scratched appliances, deep scratches on the hardwood floors, or damaged walls.

Step 35: Closing

If everything passes inspection and you don’t find any problems that need to be addressed during the final walkthrough, you can begin the closing process on the home. Hurray!

The framework of a new home, which is one of many steps to building a new house.
(Source: Avel Chuklanov / Unsplash)

Don’t be overwhelmed by the steps to build a house

The average homebuyer looks at at least 10 houses in 10 weeks before submitting an offer on a house. There are times when they can’t find a house they want to buy and they’ll go with a new build. Why, new construction homes are in such high demand that authorization for new residential construction building permits increased by 30.2% from March 2020 to March 2021. Within that same time frame, 1,739,000 homes began construction, and 1,580,000 houses were completed.

If you decide that new construction is right for you, but you’re uncertain about what type of new build you’d like to go with, look at your budget and try to decide the level of customization you want and how much house your budget will allow for.

“You can go to a tract home and get a lot more square footage for the money than you could with a custom build. It’s a cookie-cutter home, and the quality may not be as good as a custom build, but building custom is harder today because the price of materials has skyrocketed,” Wing advises.

If customization isn’t high on your list, a tract home or spec home is a great option. However, if you want a house that reflects your personality from the moment you sign the closing papers, then a custom home is the way to go!

Header Image Source: (Jens Behrmann / Unsplash)

7 Mistakes Buyers Make During the Final Walkthrough (And What to Do Instead!)

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You’ve found the perfect house, made your way through the whole homebuying process, and now it’s almost time to close on your new home. All that’s left to do before closing is the final walkthrough, and you’re probably very excited! So excited, in fact, you might think about arriving early to the walkthrough. So, should you arrive early? Well…no, actually, you shouldn’t.

Arriving early is just one of the mistakes buyers often make when it comes to the final walkthrough. And while it might not seem like a big deal to go through the house one last time before you sign the final paperwork, it’s actually a very important part of the homebuying process — it’s your last chance to identify any issues before they become your problem entirely.

We’ll talk about why arriving early is a mistake and share other stumbles buyers make in the final walkthrough, with insight from top real estate professionals, as well as tips on all the things you should do as a buyer.

A homebuyer arriving early to their final walkthrough.
Source: (Alex Otto / Unsplash)

Mistake: Arriving early

We get it. It’s so exciting to be at the final stages of your home purchase, you might be tempted to show up for that final walkthrough hours before you’re actually supposed to be there. But there are good reasons to avoid showing up too early.

Why is it a mistake?

Sellers sometimes have last-minute cleaning or moving to do, and showing up early isn’t appreciated, as the house might not be quite ready yet.

You’ll also want to remember that the final walkthrough is intentionally scheduled as close to the actual closing as possible, so showing up early kind of defeats the purpose.

What to do instead

Arrive at the scheduled time — or maybe five minutes early, which is perfectly acceptable.

Mistake: Not bringing your agent

Showing up without an agent to guide you through the walkthrough is a big no-no on many levels, and not just because you need their expertise.

Why is it a mistake?

Buyers, especially first-time buyers, can sometimes get a little starry-eyed in their eagerness to get settled in their new home. Your agent is there to keep you on track, and they can help you make sure that all agreed-upon repairs are taken care of and the home is in good order.

In some states, there are also potential legal repercussions for not bringing your agent with you. California real estate agent Mark Moskowitz, who has nearly 30 years’ experience in the business, says that bringing your agent isn’t just crucial for buyers — it’s required.

“Buyers cannot show up to the final walkthrough by themselves in California,” he says. “Their agent must be with them.”

What to do instead

Bring your agent!

You’ll appreciate having a professional with you who knows what to look for during that final walkthrough, and you won’t have to worry that you might’ve missed something.

an outlet that should be checked during your final walkthrough.
Source: ( Kelly Sikkema / Unsplash)

Mistake: Forgetting to bring an outlet-checker

There’s nothing worse than moving into a house after closing and realizing that several of the electrical outlets don’t work. Once you sign your closing documents, you won’t have a lot of options insofar as addressing these kinds of issues.

Why is it a mistake?

If you don’t bring something to check the electrical outlets in the house, there’s really no way for you to know if they work properly. And if part of any repair agreements includes specifics on electrical issues, it’s important to be able to check outlets.

What to do instead

You don’t have to bring a fancy piece of equipment to check outlets. A hair dryer, your phone charger, anything that plugs into an outlet will work just fine.

Take your time during the walkthrough to make sure all outlets are working, and talk to your agent about options for getting them repaired prior to closing if any don’t work.

Mistake: Planning furniture layout instead of paying attention to home condition

Will that new couch fit in the living room? Should you bring a tape measure so you can figure out where it should go?

Probably not. This isn’t the time for mentally arranging furniture.

Why is it a mistake?

The final walkthrough is your last chance to make sure the home’s condition is the same as it was when you first looked at it. After closing takes place, any problems are your responsibility. You have all the time in the world to rearrange the furniture.

What to do instead

Follow your agent’s lead and pay attention to what kind of shape the house is in, making sure that any repairs were completed and there has been no new damage to the home.

Remember, it isn’t your house until you sign off at closing, so try to remain a little detached when you do your walkthrough, and concentrate on the real reasons why you’re there.

Mistake: Forgetting to bring the purchase agreement and/or request for repairs agreement

When you get your home inspection, there are usually at least a few items that you’ll negotiate to have repaired prior to closing.

But wait…was it the second bedroom closet door that needed fixing? Did you want that dripping faucet repaired? Do you remember everything you negotiated?

Why is it a mistake?

You may want to refer to either the purchase agreement or the request for repairs during the inspection, and if you don’t have them with you, you won’t be able to verify which repairs were supposed to be completed, or double-check any other stipulations that might have been part of the purchase agreement.

What to do instead

Bring copies of all pertinent documentation with you. You or your agent should have received proof (usually in the form of receipts) of any repairs that were completed, and you’ll want to check that against the repair agreement, purchase agreement, and the actual repairs.

Wood floors that you should check for damage during the final walkthrough.
Source: (Francisco Galarza / Unsplash)

Mistake: Neglecting to check for moving damage

Whether they’ve hired movers or are doing it themselves, occasionally a seller move-out can leave behind items that require repair.

Sometimes buyers get so caught up in making sure any agreed-upon repairs are complete, they don’t take the time to look for new damage.

Why is it a mistake?

While a scratched floor or ding in the wall might seem minimal, it is damage that you will be responsible for fixing if you don’t discover it during the final walkthrough. If you don’t want to have to take care of fixing things that got broken or scratched during the seller’s move-out, you need to look for these things prior to closing.

What to do instead

Again, this is where having an experienced real estate professional makes all the difference because they know exactly what to look for and how to resolve it.

“If there’s a legitimate problem, I wouldn’t close until it’s resolved, either by having it repaired, or putting funds in escrow to cover the damage,” says Moskowitz.

Mistake: Thinking this is the time to seek out new repairs needed on the home

According to Moskowitz, one of the biggest mistakes buyers make during the final walkthrough is thinking that they can fully re-inspect the home and potentially find new repairs that need to be done.

Why is it a mistake?

“This isn’t a time to renegotiate repairs,” he says.

“Your opportunity to request repairs comes after the initial home inspection. During the walkthrough, you’re simply checking to make sure the home is in the agreed-upon condition, and that there isn’t new damage.”

Moskowitz says that contractually, buyers can’t stop the closing just because they see something they don’t like during the final walkthrough. This is especially true in a seller’s market, where a seller might have several back-up offers on the table. “Trying to delay closing over something that wasn’t ever part of the repair agreement might end up backfiring on the buyer,” he says.

What to do instead

If you find new damage, or if there is existing damage that wasn’t disclosed during the inspection, you do have some recourse.

The key, says Moskowitz, is understanding that this is a business negotiation. “You don’t want to have an emotional reaction to things,” he says. “Communicate, don’t get upset, and you’ll likely be able to come to some kind of agreement.”

The final walkthrough is definitely an exciting time, and it should be! This is the culmination of hours of house-hunting, making sure your credit is in order, finding a mortgage lender, and jumping through all the hoops that come with purchasing a home. Not letting yourself get overwhelmed with worries about new repairs that might need to be addressed, as well as not letting yourself get too caught up in dreaming about kitchen paint colors and missing things during the walkthrough, is really the key to a productive final walkthrough.

Most importantly, however, having a professional real estate agent who not only helps you find your new home, but also takes you all the way through to that final walkthrough, can help you feel secure about your investment. Then you can arrive at the closing table with confidence!

Header Image Source: ( Roger Starnes Sr / Unsplash)

8 Questions About HOA Dues (And Their Answers)

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When you’re searching for a house, it’s not uncommon to find a few neighborhoods that could potentially be “the one.” So, what happens when you’ve found two equally lovely homes — and the size, features, and location of both are indisputably on point — but one is in a neighborhood with a homeowner’s association, and the other is not?

You’ll find arguments for both sides as to whether an HOA should be viewed as a pro or a con, but you’ll need all the facts in order to make your own fair assessment. While many folks can adopt a grin-and-bear-it approach to regulations they may not totally love for the sake of their dream home, it’s often the HOA dues that are the real difference between moving in and backing out of a deal.

That’s why we’re answering the most common homebuyer questions about HOA dues and what you can really expect in return for your hundreds (or thousands) of dollars in fees. We’ve also brought in Cassie Scramlin, a top agent in Battle Creek, Michigan, who works with 77% more single-family homes than the average agent in her area, to share her insights.

a tennis ball in a neighborhood with hoa dues.
Source: (Manny Becerra / Unsplash)

Remind me what a homeowner’s association is, exactly?

HOAs comprise people who own homes in a particular neighborhood, building, or development. Joining is typically not optional, as the whole idea is to maintain a certain standard of care and upkeep with the involved homes — but HOAs are not uncommon, with about 26% of the United States population living in a community association area.

Specifications for security measures, aesthetic regulations, community resources, and various other services are set forth and enforced by the HOA. We’ll get more into what HOA dues cover shortly, but (ideally) everyone stands to benefit from the added value and structure of the association.

So: What are HOA dues, and what do they cover?

These are the fees that you — and every other homeowner in the neighborhood — are responsible for paying. Whether these are paid on a monthly, quarterly, or annual basis will depend on your specific HOA.

HOA dues cover management, maintenance, and improvements around the community. These features will vary from one neighborhood to the next, but they typically include:

  • Common area landscaping
  • Common area utilities (electricity, water, and so on)
  • Maintaining community amenities (pools, clubhouses, fitness centers, and others)
  • Security
  • Parking lot maintenance
  • Trash removal
  • Snow removal
  • Staff
  • Insurance policies
  • … And any number of other incidentals that may be unique to your neighborhood or building

Usually, the HOA will also maintain a reserve of funds for emergencies or major expenses. Details about how funds are collected, managed, and dispersed should be found in your copy of the HOA covenants, conditions, and restrictions (CC&Rs).

A condo building with hoa dues.
Source: (Troy Tempest / Unsplash)

How much are HOA dues and how do I find out the details?

If you guessed that the answer to the first part of this question is “it depends,” you’re correct! If you’re looking at a modest condo building, where the amenities are limited to an elevator and a parking garage, your fees may well be along the lines of $200 per month. On the other hand, if the home you’re eyeing is located in a sprawling gated community with a pool, common area clubhouse, and a fully equipped gym, you could be looking at closer to $1,000 each month for your HOA dues.

HOA dues are usually paid along with your mortgage, but some associations may be set up for direct payments on a quarterly or annual basis. And there may be a further HOA buy-in fee due at the time of your home’s purchase — which, you guessed it, will vary depending on your HOA’s guidelines.

Scramlin also warns that, “just because you’re buying a home in an HOA doesn’t mean you’re automatically approved. Sometimes the association wants the buyer’s information ahead of time so they can approve them.”

If the idea of having to be approved by the HOA makes you nervous, don’t get too caught up on the what-ifs. The HOA board will have to evaluate your intent to purchase in accordance with the Fair Housing Act, and if you’ve been preapproved for the mortgage amount you’ll need to buy the home in question, there’s little reason to deny your application.

While it sounds like the variables are endless when it comes to HOA dues and regulations, the good news is that none of these details are kept secret until it’s too late for you to back out. In essence, you (as the homebuyer) also must approve the HOA, which is why it’s important to work with a skilled agent who is familiar with the communities in your area and can properly advise when you’re considering a home under an HOA.

If the CC&Rs are not already provided with the listing information, it’s critical that your agent request a copy early on in the purchase process.

“It’s always good to ask for a copy of the HOA CC&Rs and handbook within two days of an accepted offer,” says Scramlin.

In a competitive market where sellers are receiving multiple offers and there’s no time to spare, you may even want to ask for and review those HOA documents prior to making an offer. This way, you’ll know exactly what you’re potentially signing up for and can accurately determine if this home is, in fact, the one to pursue.

Can I opt out of paying HOA dues?

In short, no.

By purchasing a home in an HOA, you are contractually obligated to pay all associated fees, and failure to do so could result in the HOA putting a lien on your home. In severe cases, foreclosure can even result from defaulting on your HOA payments.

These associations are not something to take lightly, and disbanding an HOA is just shy of impossible. Be sure that you’re fully aware of and okay with all aspects of an HOA before committing yourself to a particular home, and don’t be afraid to ask questions if there’s anything on which you’d like further clarification.

Papers that explain hoa dues.
Source: (JJ Ying / Unsplash)

I’ve skimmed the CC&Rs: What’s the difference between dues and an assessment?

While HOA dues are a regular payment meant to cover maintenance, upkeep, and minor repairs, an assessment is an additional payment to compensate for something that the HOA’s reserve fund can’t cover.

Assessments are usually made in the wake of major and unexpected work. This could be anything from a pipe bursting in a common area to a video surveillance system suddenly shorting out. If you (or other residents) feel that an assessment has been leveled unjustly, there should be protocol in the CC&Rs for filing a dispute.

How often can an HOA raise its dues?

Technically, an HOA can increase dues at any time. At the risk of sounding like a broken record, there should be verbiage on this in the CC&Rs, but it’s a good idea to inquire specifically about rate hikes before buying a home in an HOA if the terms aren’t clearly spelled out in the documents.

Are HOA dues tax-deductible?

Though there are certain tax benefits to owning a home, HOA fees are usually not part of the equation.

According to H&R Block, the HOA dues for your primary residence are not tax-deductible, but you can write off dues on investment properties. If you’re not sure, it’s best to err on the side of caution and speak with a tax professional.

A hedge that is maintained using hoa dues.
Source: (Justin Veenema / Unsplash)

What else should I know about HOA dues?

Ultimately, HOA living is a personal preference. Many people enjoy the security and convenience of being part of an established community where they won’t have to worry about the neighbor across the street suddenly repurposing their front yard into a parking lot, but others prefer the independence of homeownership without an HOA.

If you’re someone who cringes at the thought of facing fines if your grass is half an inch taller than regulations call for, or if you’d rather not have to seek approval to paint your front door burnt sienna, it may be worth utilizing your agent’s expertise and finding a home that doesn’t fall under the restrictions of an HOA.

Above all, be sure that you can comfortably afford to live in an HOA community. This means factoring in regular dues, as well as possible buy-in fees and unexpected assessments. Chat with your lender to learn more about how HOA dues may impact your purchasing power and your monthly payment to avoid possibly biting off more than you can chew.

Header Image Source: (Véronique Trudel / Unsplash)

Pros and Cons: What Exactly Does a Buyer’s Agent Do, And Should I Hire One?

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Let’s be honest: If you’re a first-time buyer or relatively new to the real estate game, the whole thing can feel totally confusing (no, it’s not just you!). For instance, an agent is an agent, right? Sort of.

To further complicate the landscape, there are actually multiple terms for the type of agent who helps you through a transaction: a listing agent or seller’s agent is a real estate professional who works on the seller’s side, and a buyer’s agent works on your behalf as the buyer throughout the process.

While most agents work as either a buyer’s agent or listing agent depending on the particular transaction, some work regularly as buyer’s agents exclusively. A buyer’s agent is legally obligated to protect the interests of the buyer and help them get the best deal possible.

“They have a fiduciary responsibility to represent their clients how they would represent themselves,” explains Kevin Markarian, a top-selling agent in the San Francisco Bay Area. “So they’re going to do everything possible to help you be successful and provide you with all the information necessary to make a good decision.”

If you’re a buyer, you don’t technically need to use a buyer’s agent. But practically… you may very well find a buyer’s agent is a huge advantage, if not absolutely essential to closing a deal. Here, our expert-backed primer digs deeper into the role and lays out the pros and cons of having a buyer’s agent.

A home that a buyer's agent can help clients purchase.
(Source : Dillon Kydd / Unsplash)

What is a buyer’s agent?

First, let’s spell out the basics. There are two sides to every real estate transaction: the buyer’s side and the seller’s side. Many agents help both buyers and sellers with transactions, but some agents specialize in handling one party or the other.

Sellers agents represent sellers — that is, the home the seller is listing. These are also called listing agents. On the other side of the transaction, buyer’s agents represent buyers in seeking and purchasing a home.

What do buyer’s agents do?

Buyer’s agents are there to advise, guide, and steer you through the process using their licenses and expertise. Their supporting role for buyers typically includes:

  • Helping you make your wish list, a realistic collection of home characteristics you would like to shoot for within your budget
  • Identifying homes that fit these qualities, and taking you or directing you to see them
  • Landing on an offer price, writing your offer, and taking it to the seller’s agent
  • Advocating for your best interests in the sale, including on price and other contract negotiations.
  • Managing the transaction throughout the process
  • Negotiating repairs or price adjustments that may be feasible as a result of appraisals or inspections
  • Walking with you through the final walkthrough before you get the keys
  • Standing by for any necessary advice and support at the closing table
  • Ideally, handing over the keys with a smile, a warm congratulations, and an offer to take that first photo of you in front of your new home!
A buyer's agent explains the ins and outs of completing a real estate purchase.
(Source: Gabrielle Henderson / Unsplash)

What are the pros of hiring a buyer’s agent?

Technically, you don’t have to work with a buyer’s agent to purchase a home. But there’s a lot of upside to it. “There’s really not much of a downside,” says Markarian. “They will locate a property for you, submit an offer for you, make sure the contract is written properly, that you’re covered as far as any liability,” he says. “They put you in a position to be successful.”

Let’s break down all those pros here.

For most people, a home is the biggest purchase of a lifetime. And a buyer’s agent is your best advocate to help you through such a major transaction (and major life event!).

“This is when a buyer’s agent comes in to help you see things that you may not have seen on your own,” Markarian says. “A seasoned professional who will go above and beyond to help you in the process.”

A buyer’s agent can help you stay on top of new listings in a hot market. It’s especially important to find a buyer’s agent with local expertise in the particular market where you’re house hunting. “It’s important to work with someone who has experience, who has knowledge of a local market,” Markarian says. “People operate differently from area to area, and it’s very important that your agent understands the local market.”

A buyer’s agent knows where and how to tap into unlisted homes — that is, homes not listed on the MLS where competition may be fierce in a hot market. These might be so-called “pocket listings,” or they might be non-standard sales like short sales or foreclosures, which can be even trickier to find (and to navigate).

“They’re going to have relationships with other sellers or owners of properties similar to what you might want, and they can put you in a position to get that property,” Markarian says.

A buyer’s agent is extra-skilled at negotiating buyer contingencies. These might include making the sale contingent on your ability to get financing, an inspector’s findings at a home inspection, or your ability to sell your own house before you close on a new one.

A buyer’s agent will be attuned to red flags. These might include general issues within a particular neighborhood. And they might be more specific to insider intel on the property.

“They’ll provide you with any disclosures on the property,” Markarian says. “What’s the condition of the property? The roof? What’s the history? Have there been any permits pulled? They can sometimes find information that’s not available online.”

A buyer’s agent can bring professionalism and know-how that’s not just comforting, but also a practical advantage in a competitive environment.

“If I have two really good offers, and one has all the right legal documents and looks great, and the other is done wrong or has a mistake, who do you think gets the house?” Markarian says.

“Having a skillful buyer’s agent can give you an advantage when you’re submitting offers in a multiple-offer situation. They’re going to go to bat for you and put you in a position to be successful.”

A buyer’s agent knows the transaction from the buyer’s side, inside and out. “They’re going to negotiate for you to help you save money on the offer price, they’re going to help you come up with an analysis on what amount to offer for the property,” Markarian says. “They’re going to walk you through the entire process, track the timeline for you on your contract. They’re going to make sure that your deposit on a property is protected.”

With a dedicated buyer’s agent, you’ll also avoid a conflict of interest in dual representation. That is, the buyer’s side and seller’s side of the deal necessarily have competing goals: The seller wants the highest possible price, and the buyer wants to pay the lowest. So if an agent is representing both sides of the deal, which interest wins out? Working with an agent who is negotiating solely on your behalf eliminates this tension.

What are the cons to hiring a buyer’s agent?

Since buyer’s agents work only with buyers, they might not know about all the latest listings on the sell side.

Like any real estate agent, you will have to pay them for their services. This payment comes in the form of commission on the home sale. (If you don’t purchase a home from this agent, you won’t pay.) “An argument could be made that you don’t have a buyer’s agent because there is a commission and you’re going to save the commission,” Markarian explains (though he doesn’t advise the path).

If the seller runs into any snags on their side, your agent might not be able to assist the listing agent with untangling them because they don’t know about as many resources for sellers.

And that’s about it! Most people will find that working with a buyer’s agent is a huge advantage, if not essential, in closing the best deal.

“Yes, you could do it as a buyer on your own,” Markarian says, but many people just don’t have the background, expertise, or inclination.

“Like, if I’m going to be in a court case, I want an attorney to represent me and I’m going to rely on their expertise, their ability to help me be successful in that situation. Could I represent myself? Sure. But what do I know about law?”

A buyer's agent handing over the keys to a client's new home.
(Source : Maurice Williams / Unsplash)

How do you find a qualified buyer’s agent?

You can browse online directories to find buyer’s agents. Some real estate platforms include an agent directory; HomeLight has a free one that is also no cost to the agents. (And that means that, since agents don’t pay to be listed, you know you’ll get the most authentic match.)

You can look up their accreditations or association affiliations. Various reliable organizations you can trust have accreditations and certifications for agents who are trained to work with buyers. For instance, the Real Estate Buyer’s Agent Council, an official affiliate of The National Association of Realtors (NAR), accredits agents as Accredited Buyer Representatives.

You can also search for a buyer’s agent on the website of the National Association of Exclusive Buyer Agents (NAEBA), a professional organization of real estate buyer agents and buyer brokers. Members solely represent buyers — never sellers — and don’t accept listings or advertise properties for sale.

Ask your friends and family who they used. (Don’t forget to confirm that the experience was positive before moving forward!)

Use online reviews and ratings. Just like you’d do for a restaurant, auto repair shop, or even a doctor, you can research reviews and ratings for buyer’s agents online to help provide context and referrals.

And finally, you can find a brokerage that specializes in working with buyers and ask them to help. Call a few local brokerage firms and provide the managing broker your details. They will provide you with some agents who meet your needs.

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How to Find Rental Homes: 10 Things You Need to Know

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To rent or to buy — that is the question.

When we think of renting, we picture someone living in a cramped one-bedroom apartment, but did you know that the average size for an apartment in the United States is roughly 882 square feet, or that the average rent payment per month is $1,124 as of February 2021? That’s a lot of money for such a small space, especially when the median mortgage payment is $1,556 per month on a 30-year fixed-rate mortgage, according to 2018 reports.

So, why would someone choose to rent when they could buy a home for a few hundred dollars more per month (in some cases, a mortgage payment may be less than renting)?

There are a plethora of reasons why someone would choose to rent a house rather than buying one. The primary reasons they choose to rent include not having enough money for a down payment (38%), their credit score isn’t high enough (32%), and the coronavirus pandemic (31%). Then you have some who aren’t interested in owning a home right now (19%).

Even though you may not be interested in owning a home right now and prefer renting, you don’t have to continue to live in such cramped quarters. You could always rent a house! Renting a house gives you the perks of owning (more space, a yard, and privacy, to name a few) without needing to worry about making repairs or being stuck in the same place for decades.

If you’re wondering how to find rental homes, you’re in the right place, because we have a few great ways you can find a house to rent.

Friends who are looking for rental homes together.
Source: (Chewy / Unsplash)

How to find rental houses near you

1. Ask friends, neighbors, and family members

Sometimes the best way to find a rental is to ask people in your social circle if they have any leads. Perhaps someone will know of a sublease or someone who needs a roommate.

“There are people out there who will sublease a rental without getting the okay from their landlord. In a sublease situation, make sure their contract allows subletting. If you don’t check it, you could move in and two weeks later be kicked out,” Emeric Szaley, a top-selling real estate agent who works with 78% more single-family homes than the average agent in his area in Indiana, warns.

2. Check RentMLS.com

RentMLS.com is a website where you can search for houses for rent — sometimes, you can find homes that are rent-to-own if that’s something you’re considering. When you use this site, you can input a variety of search criteria, including:

  • State and city
  • Type of tenancy (rent, lease, or rent/lease)
  • Type of rental (senior housing, military housing, timeshare, student housing)
  • Type of property (single-family home, condo, townhouse, and so on)
  • Number of bedrooms
  • Number of bathrooms
  • Rent price range (daily, weekly, monthly)

You can sign up for an account with the site and create a House Hunter search agent. To do that, you’ll need to choose a state you want to find a rental in and then follow the on-screen instructions. Once you’ve filled in your search criteria, your “agent” will automatically notify you if and when there are any matches.

3. Use a rental listing sites

Much like RentMLS, rental sites like Apartments.com, Rent.com, and Zumper.com can be a great way to find rental houses. You’ll want to use the main search feature to look for houses in your area. Then you can adjust your search criteria based on the basics as mentioned on rentals, but you can also use other filters, including:

  • Lease length
  • Pets allowed
  • Income restricted
  • No security deposit
  • What amenities are included (if any)

4. Hire a real estate agent

A real estate agent isn’t just knowledgeable about buying or selling houses — they can help you find a rental house in any area (sometimes they are the only way to find rentals in metro areas). You could find a real estate office that also offers property management services. An agent could look at the properties they manage for a vacancy or even ask other offices for leads.

Another great thing about hiring a real estate agent is that they have a lot of connections. So while their office may not have vacancies, they may have clients moving but don’t necessarily want to sell their home.

A newspaper used to find rental homes.
Source: (Roman Kraft / Unsplash)

5. Browse your local newspaper

We may use the internet 99% of the time for everything, but that doesn’t mean the newspaper isn’t completely obsolete! People will still use the local newspaper for advertising homes for rent. What’s cool about using the newspaper is that you aren’t just limited to your local paper.

Let’s say you want to move across the country and you’re researching rental properties. You’re probably going to use online tools to find houses, but you can also use national newspapers like The Washington Post, The Philadelphia Inquirer, NY Daily News, and the Daily Press.

6. Drive through the desired neighborhood

Sunday drives aren’t just for sightseeing! The next time you’re out for a drive, take a lap around the neighborhoods you’re interested in; you could find “House for Rent” signs.

This works well in college towns, near hospitals or shopping centers, public transportation hubs, and even tourist destinations (near the beach, the mountains, theme parks, and the like).

7. Use social media

Social media is a big part of our lives, and it’s likely to stay that way. As of January 2021, there are approximately 190 million Facebook users in the United States alone.

Of all of those members, there’s someone in your area who wants to rent their house. You can find these rentals by joining a local rental group or the local community group (over 620 million groups!) and the marketplace.

When you’re in these groups, you can make a post asking for leads or browse the group using the search feature. To find rentals on the marketplace, you can use the “Categories” tab and look for the “Rentals” category or use the search feature.

Note: You do need an account to access the groups or the marketplace.

8. Try Craigslist

Craigslist is the ultimate classified ad site, but it doesn’t necessarily have the best reputation. That doesn’t mean every listing will be a scam; you just need to be hyper-vigilant and keep an eye out for red flags. Some examples of red flags to watch out for include:

  • Low prices or large security deposits
  • No address listed
  • Only an email address listed as contact information
  • Wanting cash to tour the listing

9. Check local bulletin boards

If you don’t want to sign up for a Facebook account and you don’t want to try weeding through ads on Craigslist, the next best thing is bulletin boards. Almost every post office, library, community center, or grocery store will have a bulletin board where residents will post ads for various things, including houses for rent!

However, we recommend that you practice caution when inquiring about these ads, both for the sake of your safety and wallet.

10. Negotiate with an owner of a vacation rental property

Vacation rental apps and sites such as Airbnb, VRBO, and HomeAway are a great place to find rentals for that weekend getaway, but did you know you could search for long-term rentals?

You can find some hosts who will offer monthly discounts, but if you try to book a rental during an “off” season, you may be able to contact the homeowner directly to work out a deal. This won’t be a long-term solution, but it could give you a few extra months to find something more permanent.

A park near a rental home you can find.
Source: (John Gambacorta / Unsplash)

Knowing how to find rental houses is half of the battle

When we hear the term “American Dream,” we think of President Franklin D. Roosevelt’s vision of the “pursuit of happiness as having decent housing, a good job, education, and healthcare.” Presidents Harry S Truman, George W. Bush, and Bill Clinton supported this vision, and for 44 million people, homeownership isn’t necessarily a viable option, so they rent. Having decent housing shouldn’t be an unattainable dream — it should be a right.

The biggest challenge of finding a rental home is knowing how to find rental houses that fit your budget, are in a safe location, and have the features and amenities that are most important to you and your family. There are millions of rentals out there, not just houses. If you’re unable to find a suitable house, you can tap into other great options, such as apartments, condos, townhouses, and even mobile homes.

It doesn’t matter what kind of structure you live in; the only thing that truly matters is that it’s something you can call home.

Header Image Source: (Isabella Teixeira / Unsplash)

Your Conclusive Guide to Buying a House with Cash

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Competition is heating up in real estate markets across the country as homebuyers struggle to make their offers stand out from the pack. Homes fly off the market in days, not weeks; offers go well over asking price; and bidding wars are increasingly the norm.

If you’re in the process of trying to buy a home, you don’t need us to tell you that when it comes to bidding on a home, cash is king.

“There’s basically six levels of buyers in the marketplace right now, and the No. 1 buyer is obviously the cash buyer” explains top Long Beach, California agent Ramon Sanchez, who works with 77% more single-family homes than the average area agent. “So you’d be at the top of the list above the other buyers.”

According to Sanchez, the six levels of buyers are:

  1. All-cash buyers
  2. Buyers using financing and putting down 20% or more
  3. Buyers using financing and putting down between 10% and 19%
  4. FHA and VA buyers with low down payments
  5. First-time buyers
  6. Anyone asking the seller to help them with closing costs

But why, exactly, is cash at the top of the list? How do cash home purchases work? And is there any reason you wouldn’t want to pay cash for a home?

HomeLight’s got all the answers you need right here! We’ve interviewed top experts in the field to unpack buying a house with cash: here’s just about everything you need to know.

A pen used to sign documents when buying a house with cash.
Source: (John Jennings / Unsplash)

What’s a cash offer?

A cash offer simply means you have all the money you need to buy the home in cash. If you’re using cash, you’ll have to show proof of funds with your offer.

Then it’s a matter of completing your due diligence: clearing the home’s title, getting a home inspection, confirming the home’s price (through an independent appraisal, if you choose), and closing the transaction.

How buying with cash is different from a mortgage

Buying a home using cash is pretty much the simplest real estate transaction you can make. That’s because you’re removing an important third-party: the lender.

Typically, with a financed offer — that is, one that’s backed by a mortgage — your offer is contingent on the mortgage going through successfully. Because of the due diligence involved with issuing mortgages, it takes a lot longer to close on a home with one.

According to Jessica Sanchez, Head of Mortgage Operations at HomeLight Home Loans, this due diligence is two-fold: the lender also needs to check out both the borrower and the property to make sure it’s safe to lend money for the home purchase.

“We have to ensure that the property appraises, and that it isn’t rotting and termite-infested and falling down. We have to ensure that the borrower is employed, that their income is viable. We have to verify down payment assets. And all of those things take time,” she adds.

According to the latest homebuyer data, closing with a mortgage takes an average of 57 days for home purchases.

How long does it take to close with cash?

One of the biggest benefits to buying a home in cash is the time you save on closing.

Once you remove financing requirements from the mix, a cash home purchase can close in around one to two weeks, depending on how smoothly everything goes.

“You can actually close escrow in seven days, as long as we get all our paperwork in — meaning from the title and escrow companies,” shares Ramon Sanchez.

That’s not to say delays can’t happen on cash purchases — unfortunately, delays can happen with any home purchase. But in general, cash is way faster than using a mortgage.

By now, you can probably understand why sellers are partial to cash offers: These deals are much quicker and come with more certainty than you get with financed buyers.

Should you buy a house with cash?

Of course, buying a home for cash isn’t for everyone. For one thing, you need to have the cash (though all-cash offers are being increasingly made available for homebuyers that don’t have the entire purchase price in cash through special programs like our own HomeLight Cash Offer).

The reality is, saving for a cash home purchase can take a really long time — decades in some cases. Plus rising home prices often outpace what you’re able to put away for your purchase.

But let’s say you have the money and you’re ready to plunk it down on a home. It’s probably a good idea to understand the pros and cons of buying in cash first, right?

Pros of buying in cash

“Cash is king” is the adage you hear over and over again. But why? Let’s walk through the major benefits of paying all-cash for a home.

Cash offers are more competitive

Sellers love cash for its quickness and ease. Having cash is a surefire way to make your offer heard across your local real estate market. If a seller is looking to unload their home quickly, there are few better ways to do it than sell to a cash buyer.

Avoid common mortgage contingencies

One of the reasons cash purchases are so beloved by sellers is because they come without common mortgage contingencies.

Mortgage contingencies are contractual stipulations that must be cleared before you can get a home loan. These contingencies are a pretty big deal to sellers, especially since they’re responsible for 37% of closing delays and 21% of contracts that fall through entirely.

The two most common mortgage contingencies include:

  • Financing contingency: The buyer’s finances need to check out to lend them the money.
  • Appraisal contingency: An independent appraisal company assesses the value of the home to make sure the mortgage company isn’t lending the buyer more than it’s worth.

When you pay in all cash, you can forgo these contingencies, speeding up and simplifying the home purchase.

Quicker, easier closing

Without lenders and contingencies in the mix, you’ll save major time and stress with your all-cash home purchase. With cash, you can close on your new home in as little as one to two weeks and do it with much less paperwork. Plus, you can remove the uncertainty that a third party (the lender) may not approve the deal.

You could save money on the home price

Depending on the specifics of the property and its location, sometimes you can save money on the purchase price with a cash offer. That speed and certainty that cash provides? Like we said, sellers love it, and sometimes they’re willing to take a hit on the home price to get it.

“Sometimes when you have a cash buyer, you can come in with a little bit lower price,” shares Ramon Sanchez.

However, he cautions, whether you save money on the listing price largely depends on the competition in your market and the priorities of the seller.

Sanchez says that when a seller needs to find and purchase a new home to move into while they’re selling their current home, they tend to go with the highest offer. This gives them more time to find a new home.

On the other hand, when a seller needs to be out of a home quickly, they’re probably more likely to turn to a cash offer, even if it’s a bit lower.

Fewer fees

Did we mention that most mortgages come with some pretty serious fees? If you go the home loan route, you can expect lender fees to tack on up to 3% to your home purchase.

Though it should be noted that these lender fees are entirely optional, based on the lender you choose — HomeLight Home Loans doesn’t charge any!

Still, most major lenders do charge them, and they typically have to be paid at closing as part of your closing costs. If you pay in cash, you can avoid lender fees entirely.

No interest

Another way you’ll save money with an all-cash home purchase? You won’t pay any interest on a home loan. That could save you huge over the years — tens, if not hundreds of thousands of dollars!

Let’s say you’re purchasing a $250,000 home.

You decide to go the 30-year fixed mortgage route. You put down 10%, or $25,000, and finance the remaining $225,000 at 3.8%.

With interest, you’d pay $377,425 for that home over 30 years.

If you bought in cash, you’d pay $250,000 today and save $127,425 on interest.

A luxury house purchased with a mortgage instead of with cash.
Source: (Ebun Oluwole / Unsplash)

Cons of buying in cash

Cash may be king, but buying a home in all-cash has some surprising downsides to consider.

You’re not leveraging your money

When interest rates are low like they are in today’s home market, it may not make sense to pay cash for a home, especially if you could put that money to better use elsewhere.

“Mortgages are essentially really cheap for OPM — which is short for other people’s money,” explains top California real estate agent Jordan Clarke. Using other people’s money to buy a home allows you to invest your money better.

Saving cash takes time, and you’re missing out on equity in the meantime

Most homebuyers don’t have several hundred thousand dollars lying around. They need to save to accumulate enough money to buy a home.

But in some markets, it’s simply not plausible to save up enough to buy a home in cash. For example, in Tucson, Arizona, it would take a median wage earner 12.5 years to save up enough for a $150,000 starter home — and that’s assuming home prices don’t go up at all. In reality, they’re currently rising 19.2% year over year.

In many markets, rising home prices outpace what you’re able to save. And even if you were able to save enough cash to buy a home outright, and it took you more than a decade, you have to consider the opportunity cost: You could have instead spent that decade owning a home, paying down your mortgage (which grows your equity in the home), and adding to its value through improvements.

Lack of liquidity

Another con of going all-cash on your home purchase? You’re reducing your liquid assets. Once your cash is tied up in a property, it becomes much more challenging to access it.

Equity is a great wealth-building tool for the long term, but what if you need cash today? You’d need to sell or refinance your home to get any cash from it, which puts you right back in home loan territory.

Sometimes it’s better to have that cash on hand now in case of economic downturn or an emergency situation. Or perhaps that cash would better be spent on home improvements and upkeep.

No mortgage interest tax break

Buying a home with a mortgage comes with a few distinct advantages, and one of them is the mortgage interest tax deduction. You can deduct the interest you pay on your mortgage for a home up to $350,000 (if you’re single), or $750,000 if you’re married and filing jointly.

If you buy in cash, you’ll get no such tax break.

Limits your budget

Cash limits your budget since you’re restricted to, well, the amount of cash you have. If you were to use some of that cash for a down payment instead, you could afford a pricier home.

Of course, you’ll have to make mortgage payments and pay interest if you go that route, but it might be worth taking on a mortgage if you can get into a nicer home that fits your longer-term needs.

You could actually end up paying too much

It seems counter-intuitive that you could end up paying too much on a cash purchase, but hear us out.

While it’s true you may be able to knock a little off the purchase price with cash, there’s also another side to consider: It can be a risk to forgo the appraisal.

The lender requires an appraisal so they don’t overlend on the property. But as a buyer, the appraisal protects you, too.

Sellers love to skip the appraisal — it pretty much only signifies a potential roadblock to them. But it can be less advantageous for you, the buyer, to skip the appraisal — especially in a hot markets where bidding wars are the norm, which can lead to price inflation.

“I always recommend buyers make the investment and make sure you get an appraisal done. You still want to know what you’re buying,” Ramon Sanchez advises.

You can even include an appraisal contingency in your offer, but beware that this could make your all-cash bid slightly less attractive to sellers. The ease and quickness is pretty much the point for them. Removing it could mean a less competitive offer.

Physical cash is not recommended when buying a house with cash.
Source: (Katie Harp / Unsplash)

How do you pay cash for a house?

Paying for a home in cash sounds great, but what are the mechanics like?

It’s pretty simple, really: It’s buying a house (or land!), but without the mortgage. We’ll get to the process of buying a home in cash in a minute!

Can you buy a house with physical cash?

But first, you might want to know: Are we talking physical cash here? Like, can you show up on closing day with a suitcase full of cash?

Technically, yes, you can. But should you? No, you most likely should not try to buy a home with physical cash. Carrying around that much cash is risky, and counting such a large sum can be challenging.

“Cash doesn’t have a place in real estate — no one wants a pile of cash to count,” shares top Tennessee real estate agent Sherry Ludecker.

Most all-cash buyers stick to wiring the money, just like you would if you were buying a home with a mortgage.

What’s the process for buying a house with cash?

Step 1: Make an offer

To make an all-cash offer, you’ll need proof of funds. That usually means you want your cash in one account. The financial institution will issue you a letter stating that the funds are available. You’ll submit this letter to the seller with your offer.

Before you take this step, it’s probably a good idea to talk to a trusted financial advisor to make sure you understand the implications of cashing out any assets or accounts. You’ll also want to make sure you have a great real estate agent on your side to help you create a competitive offer strategy.

Step 2: Deposit your earnest money

Your offer was accepted — congrats! If your bid includes an earnest money deposit (a good faith upfront deposit you make to show the seller you’re serious about buying their home), you’ll need to write that deposit check at this point. The EMD check is held in escrow while the purchase is finalized.

Typically, a cashier’s check will do, but make sure to have your agent double-check on acceptable forms of payment.

Step 3: Do your due diligence

Now you’ll do your due diligence on the property, including:

  • Title search: To verify that no one else can make any claims on the property.
  • Home inspection: To ensure the home is in good shape and all systems work properly.
  • Appraisal: To confirm the property’s value so you can make sure you’re making a good investment and not overpaying for the home.
  • Land survey: To establish your property lines. [This one’s optional, but it may be important depending on the property (they’re particularly helpful when you’re buying large rural properties to establish your lot lines). Consult with an agent or attorney to decide if a survey is the right step for you.]

Just because you could skip some of this due diligence doesn’t necessarily mean you should.

Remember: This step is how you’ll protect your investment. And when you’re paying cash, you’re the one shelling out for 100% of the investment. So it’s not the place to skimp on your due diligence!

Step 4: Secure homeowner’s insurance

Technically you don’t need to get homeowner’s insurance when you pay for a home in cash (mortgage lenders require it), but why skip it? If something happened to your home, you’d be on the hook.

Homeowner’s pay an average of $1,445 annually for their insurance premiums — or around $120 per month. Considering the cost you could shoulder if your home was damaged by a weather event or experienced a fire, homeowner’s insurance is relatively inexpensive for the protection it provides.

Step 5: Wire the money and close

Once everything checks out, and you’ve secured insurance, you’re ready to close!

“A day or so before the closing, or maybe the day of the closing — as long as it’s in the morning — the buyer wires in the cash,” explains top San Diego real estate agent Daniel Beer.

“It’s the simplest process you can have. It’s cash! You just wire the money, and you close.”

Make sure you check with your financial institution on wiring timelines — some cash deals can get held up by wiring delays.

A neighborhood of houses bought with cash.
Source: (Maximillian Conacher / Unsplash)

Top tips to compete with cash offers

“Okay,” you might be thinking, “cash sounds great — unfortunately, I don’t have that much.” That’s fair! Very few homebuyers do have that kind of money lying around. That’s why around 87% of homebuyers use financing.

If you’re in a competitive market where cash offers are the norm, there are still plenty of ways to compete. Let’s walk through a few.

  • Use a lender with a local presence. They have strong local relationships with agents, and those connections can help you get the deal done.
  • Get underwritten upfront. When your lender verifies your finances upfront before you make an offer, your financing is less likely to fall through. Sellers love more certainty!
  • Give the seller what they want. Find out what’s most important to the seller: closing timeline, offer amount, ease of transaction (for example, they don’t want to make repairs), and so on. Try to meet their needs with your bid.
  • Offer more. This may not be possible in all scenarios, but using a mortgage might mean offering a bit more than you would if you paid cash. So long as the appraisal checks out, this might be one way to overcome the cash competition.
  • Use a cash purchase program. What if we told you that you could make an all-cash offer, but still use a mortgage to finance your home purchase? It’s not magic; it’s our HomeLight Cash Offer program — and it’s life-changing for buyers in competitive markets.

Whatever route you decide to go with your home purchase — mortgage, all-cash, or a little bit of both with a cash purchase program — it always pays to have a top real estate agent on your side who can guide you safely through the process.

Header Image Source: (Investment Zen / Flickr via Creative Commons Legal Code)

What Is a Saltbox Home? This Slice of American History Withstands the Test of Time

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It’s a beautiful, crisp fall day in New England and you and the family are taking a road trip to go apple picking. Fall foliage is in full effect with brilliant hues of orange, yellow, and red leaves glistening from trees lining the winding country roads. Along the way, you’ve spotted several unique looking homes with a sleek front and a steep roof in the back with a brick chimney stack, centered in the middle.

“What’s the story with those?” you wonder, thinking how cozy and historical they look. You notice the smaller area in the back of the house, and wonder how people fit in it or what its purpose is. You begin to envision yourself inside, baking pies in a farmhouse-style kitchen with exposed wooden beams. Chances are you’ve seen these homes, but never knew their name or history.

These homes are called saltboxes and, while they can be found throughout the U.S., they are predominantly in New England and are a great example of colonial architecture of the early settlers, dating as far back as the 1600s. While original saltboxes are typically in low supply, you’ll seriously want to consider the benefits this house structure can offer if you see one for sale.

We talked with a top real estate agent, architect and home designer in the New England area to understand the origins of this design, the characteristics that make it unique, common renovations, and how this simple and functional home has maintained its popularity hundreds of years later.

An example of the roofline of a saltbox house.
Source: (Stephen Ellis / Unsplash)

What is a saltbox house?

One of the most easily identifiable characteristics of a saltbox is its steep, pitched roof with unequal sides. These roofs, also referred to as “catslides” because of their somewhat triangular shape, were built to withstand cold harsh New England winters. Snow and leaves can easily slide off the roof, making removal practically a non-issue.

Saltbox homes vary in size and can typically range from 1,500 to 3,000 square feet. Newer updated versions tend to have additions or a garage added on.

The home is typically two stories in the front and one in the back and features a long, sloping gable roof. Saltbox homes are made from quality construction materials and can easily be updated and renovated.  Construction is often a sturdy post and beam style, with timber framing, which supports the house with posts spaced fairly far apart (about 8 feet) to allow for large windows and high ceilings. The dense timber commonly used, such as American walnut, cherry or red oak, also tended to be Type IV grade and fire resistant, as opposed to a softwood, such as pine or spruce, that was more porous and susceptible to fires. Early settlers were onto something! On the downside, higher cost and potential for rotting could occur with post and beam. To help prevent wood from rotting there are treatments and sealants available.

In addition to its sleek, flat front exterior and practical roof, the saltbox style is said to have grown in popularity because of Queen Anne’s taxation of houses that were more than one story. A saltbox managed to avoid this tax because the back part of the house was just one story. The saltbox style eventually evolved to adding a lean-to, or a structure in which the rafters “lean” against another building or wall for support, onto the rear of the house to easily expand it for a growing family.

“If you look at historic homes, which we call antique homes over 100 years old, one of the hottest trends that is still pertinent is that historic homes hold their value,” says top-rated real estate agent Sara Littlefield.

“The replacement value of a historic home is higher than the price people can buy it at today. I think it’s all the moldings and the detailing that you can’t do today to replace it for the amount people are purchasing an antique or saltbox or farm-style or Victorian home.”

Original saltbox homes aren’t easy to come by these days. Littlefield suspects it’s because they are easy to renovate and add a structure, and buyers have already renovated them. But that doesn’t mean owners don’t retain a sense of their past.

“As one lives in the history of a home like this, one might ponder the evolution or the growth of the American heritage. You become stewards of history,” she says.

A kitchnem where you might find a salt box hanging, similar in style to saltbox homes.
Source: (Nicolas Gras / Unsplash)

Why is it called a saltbox?

The saltbox house is named after wooden salt containers from the Colonial period. Before salt and pepper shakers, North American settlers would pound salt lumps with a mortar and pestle for cooking purposes. Salt was also used for preserving food. In North America and Northern Europe, saltboxes often hung on kitchen walls, and, for those living in cold or damp areas, saltboxes would hang near a stove or fireplace to keep salt dry. Saltboxes were considered a symbol of hospitality and a comfortable home.

Noteworthy saltbox homes

While there are many historical saltbox homes in New England, we want to highlight a few with especially interesting stories that showcase the humble beginnings and determination of early American settlers and U.S. presidents.

John Adams and John Quincy Adams birthplaces

Two U.S. presidents were born in saltbox-style homes just 75 feet apart on Franklin Street in Quincy, Massachusetts.

John Adams (our second president) was born on Oct. 30, 1735, in a two-and-a-half story wooden saltbox built by Joseph Penniman in 1681. The house is simply known as John Adams Birthplace. When Adams married Abigail Smith in 1765, they moved into the house next door, which was built by Samuel Belcher in 1663. Abigail gave birth to their second son and eventual sixth U.S. president, John Quincy Adams, in this house on July 11, 1767. The house contained a law office where he, Samuel Adams, and James Bowdoin drafted the Massachusetts constitution, but today the house is known as the John Quincy Adams Birthplace.

Pettengill House

A classic example of a saltbox house can be found on the Historic Pettengill Farm in Freeport, Maine. This 19th-century saltwater farm is on the estuary of the Harraseeket River, and is owned by Freeport Historical Society.

Pettengill Farm dates back to the Revolutionary War when brothers Joseph and Aaron Lufkin arrived in the undeveloped Mast Landing area. In 1810, Joseph and Aaron, a mariner, built the saltbox-style house on the land they previously purchased in 1801, now known as Pettengill Farm. Over the years the home changed ownership. Pettengill House is listed in the National Register of Historic Places and is surrounded by acres of fields and apple orchards, making for a picturesque visit.

Salt Box Museum

The Salt Box Museum, formerly called the Garrison/Dickinson/Genung House, is based in New Providence, New Jersey. Parts of it date back to the 1700s and contain artifacts from before the Revolutionary War. The museum had been the home of Augustus Garrison, a sexton of the New Providence Presbyterian Church and was located on church property.

“At some point, we don’t know when, there was part of a second house that was rolled and added onto the saltbox and incorporated into it,” says Rick Anderson, vice president of the New Providence Historical Society. “If you view the front of the saltbox, it’s obvious looking at it that the exterior front on the left side is different from the exterior on the right half. So, there were two houses that were put together.”

In 1966, the house was threatened with demolition to make way for a commercial building and, that same year, the New Providence Historical Society was looking for a place to call home. The historical society agreed to take the house and move it across the street, placing it on a foundation they built. Since then, the house underwent renovations to make the lower rooms look like a mid-1800s farmhouse, while the upstairs room was turned into an archive room.

Post and beam construction similar to a saltbox home.
Source: ( Barthelemy de Mazenod / Unsplash)

Safe and sturdy characteristics

Saltboxes were built before balloon framing rose in popularity during the later part of the 18th century. The entire structure of a balloon framed house would be completed from the outside, without the floor, so exterior walls were continuous. It made for quick and less-expensive construction, but one significant problem with balloon framing was its fire hazard potential. If the home caught fire, wall cavities extending from the foundation to the roof structure acted as an open path for it to spread quickly, similar to a chimney stack straight up to upstairs bedrooms.

“Prior to balloon framing, it was post and beam construction, which is what saltboxes have,” says Arpita Muchhal of Arpita Muchhal Design, LLC. “The beam is a great fire stopper. Balloon framing structures can be made to be fire safe, but it is a big project. Inspectors will want to make sure you do the fire stopping and solid blocking.”

Renovating while preserving the saltbox spirit

While many admire the original structure of a saltbox home, buyers often opt to add additional storage space or structures to it.

“I love saltboxes. I think they’re very romantic,” Muchhal says. “My style is to meld the new and the old and make it livable.”

She notes that one common way people renovate a saltbox is with the addition of a shed dormer, which is an easier renovation, but can remove the distinct charm of a saltbox home. “The minute you put that dormer up, from the outside, you can see it used to be a gorgeous saltbox that now looks like any other colonial,” she says.

Muchhal prefers renovations that make a home unique, and noted that when millennials are house hunting, many are seeking a house that isn’t a cookie-cutter style.

Modernists and traditionalists like the saltbox design for its history and for its sleek, angular lines. Many older saltbox homes have been reworked by design firms to preserve the traditional exterior, but include more contemporary interiors and modern features.

Littlefield agrees that it’s important to keep some of the historical nature of a saltbox home when renovating. “You want to bring it into today’s world, but keep that history,” she says.

Kevin Latady, principal at Latady Designs, LLC, who specializes in the renovation of older and historic homes, renovated and expanded a 1750s saltbox home. He worked closely with the homeowners to help maintain the home’s original historic character and aesthetic. The renovations included adding a dormer addition in the back, remodeling the kitchen to create a space for cooking and entertaining, and converting a second floor storage area into a reading nook for children.

With so much history ingrained in saltbox homes, designers also try to preserve materials from the original structures as best they can when completing renovations. Original building materials may get dismantled, but they are often repurposed.

“Like people who worked on houses 200 years ago, we try to reuse whatever materials we can in our projects so that it’s repurposed,” Latady explains. “The builders’ hand imprint and energy is embedded in that material. I want to keep it as part of the spirit of the home by repurposing it.”

Whether you want to keep the original design or personalize and renovate, there is something everyone can appreciate about the historic saltbox home. If you’re in the market for this centuries-old style, having an expert agent on your side who knows the value and craftsmanship of these houses is key. Connect with a HomeLight buyer’s agent to help find a charming and unique saltbox home to call your own, and live in a piece of American history.

Header Image Source: (Keith J Finks / Shutterstock)