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Stock photo of piggy bank next to stacks of money

Image: Feverpitch/Depositphotos

Here’s how to get creative. But understand the ins and outs to make the right decision for you.

You’ve done your research. Interest rates are low, and you know the exact area you want to buy your future home in and the details you desire down to the type of flooring in the kitchen. Now the only thing standing between you and a seat at the offer table is figuring out how you’re going to come up with a reasonable down payment.

Aside from going the traditional route of saving slowly and consistently over time to reach your savings goal, consider these other creative options for funding your down payment:

1. Negotiate a Pay Raise

If you’re not comfortable asking for what you want, now’s the time to learn. Research comparable pay for your position, create a list of your accomplishments and the value you’ve added to your company, and schedule a sit down with your boss to discuss compensation. 

Tack on an extra $5,000 to the pay you’d be comfortable with in order to give yourself room to negotiate down if necessary. Anything extra you get in your paycheck should be earmarked for your down payment fund.

2. Tap Your IRA (But Be Aware of the Consequences)

A traditional IRA allows you to contribute pre-tax income to an investment account, which can grow tax-deferred, meaning you pay no taxes on principal (contributions) and earnings until funds are withdrawn from the account. For 2017, tax-deductible contributions may be made up to $5,500 to an IRA account. Translation: You’re saving money on your taxes at today’s rates, but you’ll be paying a future (possibly higher) rate upon withdrawal.

A Roth IRA is similar to the above traditional IRA except that contributions are made with after-tax income and therefore aren’t tax-deductible. For 2017, non-tax deductible contributions may be made up to $5,500. Translation: You’re paying taxes upfront at today’s rates, instead of paying the (possibly higher) rates in place when you begin withdrawals. 

As a first-time buyer, or if you haven’t owned a house for at least the past two years, you can withdraw $10,000 penalty-free from your traditional or Roth IRA to fund a down payment. Keep in mind, however, that you’ll still have to pay income taxes (state and federal) on the distribution you take from your traditional IRA. (That money did go in tax-deferred, after all). Also the $10,000 is a lifetime withdrawal limit.

Remember that if you’re tapping into your retirement account and withdrawing funds, you’re not only setting yourself back on retirement savings, but you’re also losing the opportunity to let time and compound interest work on (and grow) those funds for you. Given the pros and cons, which will depend on your particular circumstances, research and decide if borrowing from your retirement is right for you.

3. Borrow From Your 401(k) (With Eyes Wide Open)

While not an ideal situation for the reasons listed above (you’re losing out on time and compound interest growing your money), borrowing money from your 401(k) could be an option if your company savings plan allows it. 

Keep in mind that this isn’t a withdrawal, but is a loan that you’ll have to pay back with interest. The  monthly payments you need to make repaying the loan may impact the amount of mortgage you qualify for. The plus side is that the interest you’re paying will be going into your account.

4. Leverage Certificates of Deposit (CDs) or High-Yield Savings Accounts

While you don’t want to take risks with the money you plan to use in the next few years to purchase a home, you also don’t want it sitting stagnant either. Look into your bank’s high-yield saving accounts and CD rates to determine if you can get a better rate on your money.  

Consider laddering CDs to maximize your earning power by purchasing different certificates with a variety of maturity dates, such as 6, 12, or 24 months. This provides you flexibility to reinvest the money as the CDs mature and take advantage as interest rates change (increase or decrease) to earn a higher return on your money.  

5. Hang On to Extra Money

Whether it’s a bonus, tax refund, holiday gift, or cash from items you’ve sold, set a plan to stash all extra cash in your home down payment fund. If that feels to stringent, give yourself a little wiggle room with an allocation of 85% to savings and 15% towards a personal splurge.

6. Start a Side Hustle

If your current pay is already stretched as far as it can go with expenses, consider starting a side gig where you can leverage your talents in web design, tutoring, pet sitting, writing, or whatever interests you have. 

Free up a few hours a week in your calendar to dedicate towards building this second income stream and put all funds earned in your separate “home down payment” savings account.

 

© Copyright 2018 NATIONAL ASSOCIATION OF REALTORS®

 

There are better ways to spend.

The washer/dryer combo was perfect! Such a delightful way to brighten laundry day — with a cheerfully colored front-loader set.

They could actually make laundry fun!“They were this gorgeous, greenish-teal, and they looked great in my laundry room,” says Eliesa Prettelt, avid DIYer and author of “A Pinterest Addict” blog.

A teal washer and dryer combo in a light-blue laundry room
Image: Eliesa Prettelt, Pinterest Addict Blog

She eventually gave up and got nondescript, white, commercial-grade top-loaders she scored for less than half the cost of her original machines. They may be plain, she says, but “I’ve had no problems since.”

Lesson learned. The hard way. Now for learning the easy way. Here are seven common money mistakes homeowners make — and now you won’t.

1. Contractor House Calls

Think you need a pro to fix that leaky toilet? You’d be surprised how easy it can be to fix it yourself — and save the typical $45 to $150 per hour plumbers can charge (and don’t forget the boost in your can-do attitude!). You can often find home remedies for small jobs like a leaky faucet or broken garbage disposal on YouTube. Just be sure it’s a reputable source. And check out several videos on the same repair. That’ll help make sure no crucial step is missed.

“We save a couple hundred dollars per year by doing small home repairs ourselves,” says Lauren Greutman, frugal living expert and author of “The Recovering Spender: How to Live a Happy, Fulfilled, Debt-Free Life.”

For those who prefer an expert, Greutman suggests smaller, local retail appliance stores. “It’s a little-known secret that they usually have repair men that are very inexpensive,” she says.

2. Extended Warranties

It’s tempting to insure your new, big purchase, but according to Consumer Reports, you’re probably already as covered as you need to be.

How’s that? Most major appliances come with at least a 90-day manufacturer’s warranty. Buy with a major credit card (Visa, Mastercard, Discover, or American Express) and it will likely double that standard warranty.

Combine that with the fact that “Consumer Reports” found most products won’t break during the standard two- or three-year service contract period. When they do, the repair cost is usually just a few dollars more than the cost of the warranty.

Instead of paying for an extended warranty, stash the cash in a savings account earmarked for home repairs. When you need it, it’ll be there.

3. Flashy Feature Appliances

The newest appliances come with super fun features. Who wouldn’t want an oven that talks, remote access to your A/C, or bottle jets in the dishwasher (paging new parents!)? Still, it may not be financially wise to replace a fully functioning older model just to gain modern perks. So says Arthur Teel, owner and operator of The Handyman Plan in Asheville, N.C.

Circuit boards break, and energy efficiency numbers don’t always add up,” he says.

Yup. That’s even true for some energy-efficient appliances that boast cost savings. “Spend $1,000 on a new, energy-efficient stove and it could take 10 years of energy savings to offset the cost of the new stove,” he says. “Unless you have a really old appliance, it’s probably efficient enough for your needs. Also, putting the appliance into the landfill isn’t exactly great for the environment.”

4. Budget Bulbs

Incandescents may be easy on your everyday household budget, but they’re tough on your energy bill. Start replacing them now with LEDs. To help swallow the initial costs, just replace them as they die out. A typical LED bulb can recuperate its cost in a little over a year (at least according to manufacturers, so in reality it’s probably a bit longer, but not enough to quibble about). Even better, since LEDs can last a decade or more, you won’t have to buy bulbs as often, and your energy costs will be lower!

5. Commercial Cleaning Supplies

Even if you’re buying off-brand products to save costs, you’re still wasting money. You don’t have to spend anywhere near the cost of commercial products.

“Vinegar will clean a lot of things, and it’s a heck of a lot cheaper than buying pricey cleaning supplies,” says Prettelt. She also likes baking soda and hydrogen peroxide, each of which can be found for just a fraction of the cost of their popular store-bought equivalents.

“You can use these natural products in your dishwasher, in your garbage disposal, in your wash,” Prettelt adds. Easy peasy. And it’s super cheap.

That’s right. You can make dishwasher soap from a cup each of borax and washing soda, a half-cup kosher salt, and five packets unsweetened lemonade mix. Or whip up your own window cleaner with these simple ingredients:

  • half-cup white vinegar
  • rubbing alcohol
  • two cups of water
  • two tablespoons of cornstarch

All those ingredients cost pennies. And to think you were paying $2-$4 for the commercial kind.

6. A Storage Unit

If it doesn’t fit in your home, is it really worth keeping? Ditch nostalgia and think with your bank account: At a cost of between $50 and $300 per month, it may be time to purge the junk.

If you can’t bear to part with something you don’t use regularly — say, great-grandma’s heirloom china — rethink your home’s organizational storage. Clean out the closet, craft shelves beneath the stairs, or build window seats with drawer storage. You’ll be investing in your home instead of giving money to a storage vendor.

7. Private Mortgage Insurance (PMI)

Bought your house with less than 20% down? You’re probably paying for PMI (a type of insurance that guarantees your mortgage lender will be covered if you default). It costs between $600 and $1,200 per year for a typical home. But once your loan-to-value ratio drops to 80%, you’re not required to pay it. But the lender isn’t required to drop it until it reaches 78%.

That 2% difference could cost you hundreds, even thousands of dollars, depending on your home’s mortgage balance. So, keep an eye on your statement and whip out that calculator when you’re getting close. Then, if you’re feeling really savvy, keep paying that amount every month — but apply it to your mortgage principal instead. Do that, and you could recoup your PMI fees. Because as you pay down your principal, you’ll pay less in interest, potentially saving thousands. Now how savvy is that?

© Copyright 2018 NATIONAL ASSOCIATION OF REALTORS®

 

 

 

 

 

 

 

 

This house in Kingsland, one of Calgary’s middle-ring neighbourhoods, was completely stripped and rebuilt by Corefront Custom Homes & Renovations over a seven-month period. Courtesy Corefront Custom Homes & Renovations

There are tens of thousands of Calgary homes built from the 1950s through the early 1970s in what were then new suburbs. One thing many of those homes have in common is the need for updating to modern tastes.

When Lewis Cowie bought a home in Kingsland about six years ago, it was as if time had stood still in the classic, 1950s bungalow. Most of the home was still original, right down to the bathroom fixtures, so a major renovation project was in order.

Luckily, Cowie is a director with Corefront Custom Homes & Renovations, and his company was ready for the challenge.

“We completely gutted it down to the studs, which is common for houses of this era,” he said. “We put in all new wiring and plumbing, and changed some plumbing locations to make the floor plan work out better.

“THEY COME INTO THIS KIND OF HOUSE PARTLY BECAUSE THEY LOVE THE CHARACTER OF A MID-CENTURY, VINTAGE HOUSE, AND ARE LOOKING AT HOW MUCH OF THAT CHARACTER THEY WANT TO KEEP.” – KEITH MCTAGGART, BENROSS HOME SERVICES LTD. OWNER AND PRESIDENT

“(Then) we took out some interior walls to open the space up, enlarged the kitchen, did up the basement really nice.”

Cowie says the dining room and kitchen were combined, and one of the spare bedrooms was used to create a master bedroom ensuite with walk-in closet – both common renovations for an older home.

He says the result “really felt like a brand-new house,” but in a location with schools, mature trees, homes “that don’t all look the same,” and only a 10-minute drive to his office near the Saddledome.

“That’s a big part of Corefront’s market, renovations of those middle-ring homes from the 1950s to ’70s,” he said. “They’re fun projects to work on.”

Keith McTaggart, owner and president of Benross Home Services Ltd., says some people actually buy a middle-ring home with a view towards keeping some aspects of the original design in a renovation.

“They come into this kind of house partly because they love the character of a mid-century, vintage house, and are looking at how much of that character they want to keep,” he said. “So I think it’s a good idea to live in the house for a while and see what it has to offer you in its original design.”

McTaggart says a comprehensive renovation to an older home – taking out some walls to create a more open concept, and redoing the kitchen and bathrooms – might cost $100,000 to $150,000.

Meanwhile, something simpler like a basic new kitchen starts around $15,000 to $20,000, and a basic bathroom reno starts at about $10,000.

These backyard ideas will make your small space look and feel BIGGER.

Don’t think of your microscopic yard as a curse. So what if it’s technically a small concrete slab that barely accommodates a half-sized Weber grill? Or if your flagstone patio is just big enough for you, a lounge chair, and a good book? Your tiny outdoor spot is actually an opportunity to get creative.

To live large with a small footprint, try these functional tweaks to make your minuscule outdoor space feel like a palatial retreat.

1. Divide the Space

Wait, what? That’s right. Even if your square footage is relatively small, dividing your outdoor space into two areas can actually make it seem bigger.

“Creating a space within a space makes it seem larger because it gives you a separate experience,” says Joy Diaz, chief marketing officer at Land Care Inc.

Diaz recommends a small wood pergola, which you can purchase at home improvement stores or even build yourself without too much effort. You can also use walls to divide the space. We’re not talking about bulky concrete barriers here — try using short trellises, arbors, or vine-covered wooden fences to separate your loungers from your patio table.

“It says, ‘I’m in one place, that’s another place, and if there’s room for two places it must be big,’” says J. Scott Williams, a landscape architect at YardApes in New Milford, Conn.

As an added bonus, walls prevent visitors from walking in a straight line from one end of the patio to another, instead creating a winding path that makes your small space feel expansive.

2. Plant a Privacy Screen

A peaceful space always feels roomier than one crowded with noise and other distractions — like the pressure to strike up an awkward conversation every time you lock eyes with the nice lady next door. Keep your evening soirées and morning coffee blissfully secluded with a few cleverly positioned plants.

There are a few ways to achieve this goal. Along the very edges of your space, plant a tall, wide bush, like the purple smoke bush, a fantastic, easy-to-care-for container plant that can grow six or seven feet every year. Just be sure to keep on top of trimmings to keep it from overgrowing your patio — you want it growing up, not out — but as long as you do so, it makes an excellent privacy screen.

“A larger plant in a small space is dramatic,” says Williams.

You can also privatize your patio without sacrificing any square footage with the oldest trick in the book: Install some climbing vines on a trellis to clearly tell your neighbors, “This is my special space.”

3. Add a Water Feature

A dramatic focal point can really add some intrigue to a mini yard. And a water feature, like a bubbling birdbath or wall fountain, can do just the trick.

Williams suggests choosing an element with a black bottom, which will create a darker surface that reflects sky and trees, making your outdoor space feel bigger. Just make sure your water feature doesn’t overwhelm your porch — you can skip the long, vanishing edge-style pool.

“I wouldn’t put a longer element in a small space, which might make it look smaller,” Williams said. “Add a smaller water element into a small space, and make it seem larger.”

4. Use Vertical Space

Vertical planter in a back yard
Image: Deborah Silver, photo/Barry Harrison of Art | Harrison, design

Distract from your lack of horizontal yardage by really maximizing your outdoor space’s most abundant dimension: vertical space.

Use your walls, fence, or railings as extra space by adding vines or a living wall filled with flowers, herbs, and other eye-catching greenery. For a simple change, prop an attractive ladder — think barnyard chic, maybe? — against the wall and use its rungs as shelving for plants or other decor. The internet is bursting with other vertical planter and shelving ideas, too, using everything from pallets to chicken wire.

“It draws the eye up and outwards, and gives it a green and completely different look,” says Diaz. “It can change the atmosphere of the area. You’ve walked into a different experience from your home — it’s a psychological and emotional change.”

5. Expand Space with a Mirror

A mirror on a fence in an outdoor space with patio furniture
Image: Stacy Risenmay

“Mirrors really make space feel more expansive,” Williams says. On a small porch, place a tall mirror on the ground behind a portico or a patch of greenway, which “makes it look like a doorway into another garden.”

You don’t need to go huge on the mirror to have a huge impact. Even hanging a normal-sized mirror, like one you might find over a dresser, can make a tiny space feel much larger. But whichever you choose, make sure to weatherproof your mirror first using a mirror edge sealer (you’ll also want to add sealant to the frame, especially if it’s made from wood) to prevent moisture damage — unless you like the weathered look, that is.

Small spaces don’t have to be limiting. With a little bit of creativity — and perhaps a reflective surface or two — there’s no reason you can’t feel like you’re living in your very own Versailles.

 
Offers: Which One Is Best for You and Why illustration
Image: HouseLogic

And on that day, you’re going to face a question you may not have previously considered: How do you know if an offer is the best one for you?

Your listing agent will be a big help here. They will understand and help you suss out the merits and faults  of an offer because — believe it or not — it’s not always about price.

One buyer’s beautifully high offer might not look so good anymore, for example, if you discover that it’s contingent upon you moving out a month earlier than planned. Or, conversely, you may prefer speed over price, particularly if you’re moving to a new city. 

Your listing agent will have a sense  of what you want financially and personally — and can help you determine whether the offer at hand satisfies those goals. 

Before the first offer rolls in, here’s what you need to know about the offer evaluation process, including the main factors that should go into making a decision — accept or reject? — with your agent.

5 Important Things — Other Than Price — to Consider When Evaluating an Offer

Want to fetch top dollar for your home and walk away with as much money in your pocket as possible? Of course you do. You’ve gone through the time-consuming process of setting your asking price, staging your home, promoting your listing, and preparing for open houses — and should be rewarded for your efforts.

Your first instinct may be to just pick the highest bid on the table. But the offer price isn’t the only thing worth considering.

When vetting offers, evaluate these five areas in addition to price:

1. The earnest money deposit. One important consideration when weighing an offer is the size of the earnest money deposit. The EMD is the sum of cash the buyer is offering to fork over when the sales agreement is signed to show the person is serious (i.e., “earnest”) about buying your home. This money, which is typically held by a title company, will go toward the buyer’s down payment at closing.

A standard EMD is 1% to 3% of the cost of the home (so, that would be $2,000 to $6,000 on a $200,000 house). If a buyer tries to back out of an offer for no good reason, the seller typically keeps the EMD. Therefore, the higher the earnest money, the stronger the offer.

2. The contingencies. Most offers have contingencies — provisions that must be met for the transaction to go through, or the buyer is entitled to walk away from the deal with their earnest money. Contracts with fewer contingencies are more likely to reach closing, and in a timely fashion.  

Here are five of the most common contingencies:

  • Home inspection contingency. This gives the buyer the right to have the home professionally inspected and request repairs by a certain date — typically within five to seven days of the purchase agreement being signed. Depending on where you live, you may be required to make home repairs for structural defects, building code violations, or safety issues. Most repair requests are negotiable, though, so you have the option to haggle over which fixes you’re willing to make.
  • Appraisal contingency. For a mortgage lender to approve a home buyer’s loan, the home must pass appraisal — a process during which the property’s value is assessed by a neutral third party. The appraisal verifies that the home is worth at least enough money to cover the price of the mortgage. (In the event the buyer can’t make their mortgage payments, the lender can foreclose on the home and sell the property to recoup all — or at least some — of its costs.) Generally, the home buyer is responsible for paying for the appraisal, which typically takes place within 14 days of the sales contract being signed.
  • Financing contingency. Also called a loan contingency or mortgage contingency, a financing contingency protects the buyer in the event their lender doesn’t approve their mortgage. Although the timeframe for financing contingencies can vary, mortgage lenders report that buyers generally have about 21 days to obtain mortgage approval. 
  • Sale of current home contingency. Depending on the buyer’s financial situation, their offer may be contingent on the sale of their home. Usually, buyers have a window of 30 to 90 days to sell their house before the sales agreement is voided. This contingency puts you, the seller, at a disadvantage because you can’t control whether the buyer sells their house in time. 
  • Title contingency. Before approving a mortgage, a lender will require the borrower to “clear title” — a process in which the buyer’s title company reviews any potential easements or agreements that are on public record. This ensures the buyer is becoming the rightful owner of the property and the lender is protected from ownership claims over liens, fraudulent claims from previous owners, clerical problems in courthouse documents, or forged signatures.

These contingencies are standard for most real estate sales contracts. There’s one exception: the sale of current home contingency, which tends to be used more often in strong buyer’s markets, when buyers have greater leverage over sellers. 

That being said, contingencies are always negotiable. (The caveat: Mortgage lenders require borrowers to have appraisal financing contingencies, or they won’t approve the loan.) It’s up to you to decide what you’re comfortable agreeing to, and your agent can help you make that decision.

3. The down payment. Depending on the type of mortgage, the buyer must make a down payment on the house — and the size of that down payment can affect the strength of the offer. In most cases, a buyer’s down payment amount is related to the home loan they’re taking out. Your chief concern as a seller, of course, is for the transaction to close — and for that to happen, the buyer’s mortgage has be approved.

Generally, a larger down payment signals the buyer’s financial wherewithal to complete the sale. The average down payment, according to the NATIONAL ASSOCIATION OF REALTORS®, is 10%. Some mortgage products, such as FHA and VA loans, allow for even lower down payments. 

If, by chance, the appraisal comes in higher than your contract’s sale price, the buyer with a higher down payment would more likely be able to cover the difference with the large amount of cash they have available.

4. The all-cash offer. The more cash the buyer plunks down, the more likely the lender is to approve their loan. That’s why an all-cash offer is ideal for both parties. The buyer doesn’t have to fulfill an appraisal contingency — whereby their lender has the home appraised to make sure the property value is large enough to cover the mortgage — or a financing contingency, which requires buyers to obtain mortgage approval within a certain number of days. As always, having a sales contract with fewer contingencies means there are fewer ways for the deal to fall through.

5. The closing date. Settlement, or “closing,” is the day when both parties sign the final paperwork and make the sale official. Typically, the whole process — from accepting an offer to closing — takes between 30 and 60 days; however, the average closing time is 42 days, according to a report from mortgage software company Ellie Mae. 

Three days before closing, the buyer receives a closing disclosure from the lender, which he compares with the loan estimate he received when he applied for the loan. If there are material differences between the buyer’s loan estimate and closing disclosure, the closing can’t happen until those amounts are reviewed and approved. But this is rare.

Some transactions can take more time, depending on the buyer’s financing. For example, the average closing time for a Federal Housing Administration (FHA) loan is 43 days, according to Ellie Mae. 

Whether you want a slow or quick settlement will depend on your circumstances. If you’ve already purchased your next home, for instance, you probably want to close as soon as possible. On the other hand, you may want a longer closing period — say, 60 days — if you need the proceeds from the sale to purchase your new home.

When Should You Make a Counteroffer?

Depending on the circumstances, you may be in the position to make a counteroffer. But every transaction is different, based on the particular market conditions and your home. In some circumstances, you can be gutsy with your counteroffer. In others, it might serve your goals better to give in to the buyer’s demands. Your agent can provide helpful insight about when and why a counteroffer will be the right thing for you.

For instance: If you’re in a seller’s market — meaning that homes are selling quickly and for more than the asking prices — and you received multiple offers, your agent may recommend you counteroffer with an amount higher than you would have in a buyer’s market. 

If you choose to write a counteroffer, your agent will negotiate on your behalf to make sure you get the best deal for you.

A caveat: In many states sellers can’t legally make a counteroffer to more than one buyer at the same time, since they’re obligated to sign a purchase agreement if a buyer accepts the new offer.

When Does an Offer Become a Contract?

In a nutshell, a deal is under contract when the buyer’s offer (or seller’s counteroffer) is agreed upon and signed by both parties. At that point, the clock starts ticking for the home buyer’s contingencies — and for the sweet moment when the cash — and home — is yours.

 

© Copyright 2018 NATIONAL ASSOCIATION OF REALTORS®

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