Rich Cederberg's Albuquerque Real Estate Blog

One of the most frequently asked questions by first time home buyers is "How much cash do I need to buy my first Albuquerque Home?"

The answer is "Not as much as you think!"

At the very least you will need some cash for a deposit, but you may not need any  for a down payment or closing costs. Here's more explanation about the fees and about how you can borrow against the First Time Home Buyer Tax Credit to get money for your down payment and closings costs.

Earnest Money Deposit

This is money you will need to have upfront, when you make an offer on an Albuquerque Home. Your deposit is called "earnest money." In the old days, earnest money was typically 1% of the purchase price. That would be $1,500 on a $150,000 house.

Today less of an earnest money deposit is frequently required, with many buyers putting down as little as $500. One time I opened "escrow" on a house for a buyer client with only $300 recently. How much earnest money you will need to pay is negotiable, and it's up to the seller as to what they'll accept. The more earnest money you put down the stronger your offer is. Your deposit is put toward other costs at closing, so essentially you get it back when you buy the house.

Down Payment Funds

When I was just out of college I wanted to buy a house, but I was told I needed 20% of the purchase price for a down payment. At the time they might as well have said a million dollars. Like a lot of first time home buyers I hadn't been working that long, didn't have a great job yet and had very little savings.

The good news is that today most first time buyers are putting down only 3.5% and using what's called an FHA loan.

Don't fret, if you don't have 3.5% to put down you can borrow against your First Time Home Buyer Tax Credit
through a program offered by the Mortgage Finance Authority of New Mexico. You'll have the option of paying back the down payment loan when you get your tax refund-assuming you qualify for one-or you can begin making payments on it if you choose to use your tax refund on something else.

Closing Costs

Lender related closing costs can include a credit report fee, underwriting fee, loan doc preparation fee, tax service fee, and flood zone cert fee. The costs of these fees vary from lender to lender, but it can cost $500 to $700. Depending on the program and lender, there may or may not be an origination fee. Sometimes this is as much as 1% of the loan. On a $150,000 house that's $1,500! This is am important question to ask the lender, is there an origination fee or any points?

There will also be some prepaid and reserve fees that the lender requires you to pay at closing to start the escrow account with your lender. These will include one year and three months home owners insurance, mortgage interest from the date of closing until the end of the month and a pro ration of property taxes.

There may be a few title company closing costs as well, but most of these are typically paid by the seller on an Albuquerque Real Estate transaction.

To sum it all up for you, on a $150,000 house it can cost as little as $6,500 in down payment and closing costs, all of which you can get from the Mortgage Finance Authority if you qualify! Many of my first time home buyers close for under $500, the cost of the earnest money. 

Sometimes it can be even less than $6,500! In many cases I can negotiate the fees to be paid on your behalf by the seller.

The best way to find out exactly what it will cost is to speak to a reputable lender. They should help you decide what loan type works best for your situation, what the interest will be and how much cash you will need to bring to close.

Are you ready to find your new home? Then contact me, Rich Cederberg, so I can help. I especially enjoy working with first time home buyers. I don't get annoyed by questions, and I am very capable at helping you understand every aspect of the home buying process.

You've probably heard that the 8,000 First Time Home Buyer Credit has Been Extended!

Don't wait and lose out on the First Time Home Buyer Credit!!!

Watch This Short Video for more Information

Here's three great reasons to buy a home before April 30, 2010!

1. Inventory is high, which means there are a lot of homes to choose from.
2. Interest Rates are really low. Even a quarter of a point in the rate can make a sizeable difference in your monthly payment.
3. The $8,000 First Time Home Buyer Tax Credit.

If you are thinking about buying an Albuquerque Home in the near future the time is now! I think the market will hit bottom in the next few months!

This is the fourth post in my series Albuquerque First Time Home Buyers Guide.

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So you’ve decided the time is right for you to buy your first Albuquerque Home. You’ve decided you how much you can afford, you've found the right house and now you’re ready to make an offer. What does that really mean, Make an Offer? Well it means you’re going to write a proposal. The proposal goes on a Real Estate Association of New Mexico (RANM) form called a purchase agreement.

The purchase agreement is a contract, and therefore you should think carefully through what you propose before you write it. Here are some of the things you need to consider to protect yourself when you’re ready to make an offer.

Making an Offer on an Albuquerque Home for Sale

Here’s what you’ll need to consider and maybe even negotiate when you make an offer on an Albuquerque Home.

Purchase price. How much are you going to offer? Should you just offer full price? I’d say not usually, unless the home just came on the market, it looks perfect, you love everything about it and it seems like it is priced to sell. In that case you might consider it, but usually there is some negotiating involved.

Since you are not an expert on the Albuquerque Real Estate Market, you’ll need the guidance of an Albuquerque Realtor to help you understand how the home is priced-is it priced to sell, or is it priced above the market? Realtors are working the market daily and should understand pricing. They should also understand what the current trends are. For instance, did you know that even the current buyer’s market houses are still selling for really close to list price? Read more about this in my post “Is it a Great Time to Make a Lowball Offer in Northwest Albuquerque.”

Closing Date.  You may want to close quickly, but the seller may still be looking for their next place to live. Or perhaps their new job out of state doesn’t start for two months and they didn’t think their house would sell so quickly. You may need to negotiate on this to find a solution that works for everyone, or if negotiations stall, find another house.

Closing Costs. There are three types of fees that most people lump together and call “Closing Costs.” On the purchase agreement there are Loan Related Fees, Prepaids Required by the Lender and Title Company Closing Costs. All of these are negotiable, but depending on which ones you ask sellers to pay will make your offer more or less appealing. Although they are negotiable, there is a standard way that homes are sold in Albuquerque which is different from how they are sold in Santa Fe, or Denver or Tempe.

Inspections. There are many types of inspections you can have performed on a home. Take heart, if inspections reveal big problems, the contract describes how you will resolve them or how you can terminate in some cases and still get your deposit back. Different types of inspections are needed depending upon the home you are looking to purchase, but at the very least you should have a full home inspection and a termite inspection. It used to be standard practice on and Albuquerque Home Sale for the seller to pay for these inspections, but now many buyers are choosing to be more in control and pay for inspections themselves so they can choose the home inspection company. You'll also have to consider if you'd like to get a home warranty.

Repair Allowance. When you write the offer you will need to propose a repair limit. If the cost of repairs need on the house exceed this amount, you can either renegotiate the sales price or terminate the agreement and you may be entitled to get you deposit back. Why not write one million dollars in? Because the seller would never agree. You see, this is an escape clause for the seller too. If there are costly repairs that need to be done that exceed $1,500, for instance, the seller will also be able to terminate the contract as well. This might happen if the house needs a new roof and the seller doesn’t have enough cash to pay for it or enough equity to have it paid for at closing. Read more about roof issues here.

Offer Deadline. You’ll need to decide how long you are going to give the seller to consider your offer before they either accept it, reject it or make a counteroffer. Standard practice on an Albuquerque Home for Sale these days is 24 hours, although I’ve helped buyers set the deadline as short as four hours and as long as three days.

It may seem like a lot of decisions to make, but hopefully you’ve chosen a Realtor that you have confidence in to help guide you through the process. I’ve heard of real estate agents just flipping pages, having already filled in all the blanks and then saying “sign here," but that's not how I work.  I never make decisions for my clients, rather I explain the pros and cons of their decisions so they can fully understand what they are getting into.

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Here is the third installment in my Albuquerque First Time Home Buyers Guide

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OK, so you've decided it's time for you to Buy your First Albuquerque Home and you've been preapproved by a lender, so now you're ready to look for a home. Even though it's a buyer's market, you still need to buy smart. The quality of your decision will effect your financial life for many years.

Tips for Making a Smart Purchase on Your First Albuquerque Home

Location is Huge

There's an old joke about real estate: 

One person asks "What are the three most important things to consider when you buy real estate?" Another person is quick to answer "Location, Location, Location!"

Well, it's still true, location is the number one most important factor! What this really means is you need to search for the best neighborhood you can afford to live in. Here some things to consider when you are thinking about neighborhoods:

Pride of Ownership. Look around the neighborhood as you drive through it. Are the neighbors taking care of their front yards? Trimming their shrubs? Sweeping the gravel off their sidewalks and driveways? Are there cars parked on the landscaping? Are there old vehicles and oil stained driveways?

Quality of the Schools. This is important even is you don't plan to have children because schools drive and support housing values. Do your research before you start looking so you'll know where school boundaries are when you go out looking at homes. Use the Schools for Your Address tool on the Albuquerque Public Schools website to learn where your kids may go to school.

Crime. You can research crime by going to www.CrimeReports.com or www.SpotCrime.com. You might also want to check out Sex Offender Information. See my post Conduct Your Due Dilligence.

Size is Not Nearly as Important   

Square Footage Can be Misleading. How a house is laid out, how the floor plan flows is just as good a measurement as how many square feet it has. Does the house have an impressive two story entryway or an incredible vaulted ceiling? That's great, but remember all that impressive but unusable open space is in the square footage. 

Don't Pay too Much Attention to the Price Per Square foot. This number is frequently misused by first time home buyers to determine which house is a better deal. Remember what I said about location earlier. Once you identify a neighborhood, then you can use the number to compare very similar homes only.

Tastes in Housing Change over Time. In 2006 everyone wanted homes with just tons of open space including giant loft areas and multiple living areas.Builders were going crazy building 3,500 square foot homes with only 3 bedrooms.They were impressive homes, but now most homeowners realize all that extra open space goes unused and that their homes are not worth nearly what they paid.

I'll give you an example of an area of homes that were built in 2006 that are like what I just described. There are some huge homes in a certain subdivision in Northwest Albuquerque. The model homes were so big and beautiful and impressive. Well, they couldn't sell a lot of them even when they were new. Many of them had to be auctioned off in a hotel meeting room for way less than the builder was trying to sell them for only months before. Now many houses in the neighborhood are short sales or foreclosures.


I hope you will consider these tips as you look for your First Home in Albuquerque. The more you read and learn, the smarter you will buy, so check out the next post in my Albuquerque First Time Home buyer Guide: "Making an Offer."

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Here is the second in my series of posts for Albuquerque First Time Home Buyers.

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Buying a Home in Albuquerque is right for you the next step is to make sure your financial house is in order.

There are two questions you'll need to answer before you go home shopping: 1) How much can you afford in terms of a monthly payment on a house? and 2) How large a mortgage can you qualify you for?

How Much Home Can You Afford?

If you don't already have one, you should create your household budget. There are many resources online to help you. Home Budget for Dummies is one that you'll have to pay for, or FreeFinancialAdvice.net is another which is free. If you've never done a budget before, you'll want to start by tracking very closely everything you spend out of pocket in a month. Then you'll want to consider what you spend on your current housing and utilities, your car payments and insurance, your credit cards and other expenses like student loans.

Once you have a grip on your budget you can use an online payment calculator to estimate how much house you can buy and stay within your budget. There is an excellent tool at  CNNMoney.com. All you have to do is plug in some numbers and it will calculate an affordability range for you. You'll have to enter your annual income, your downpayment (how much you have saved or can get from family to put down) and your monthly debt. You'll also have to estimate a couple of things like mortgage rate-I'd put in 6 % right now, it might be a little high but better to overestimate than underestimate, and property taxes-estimate 1% of purchase price for the price of the home you want. By the way, if you haven't svaed much for downapyment then check out this zero-down program offered by the New Mexico Finance Authority.

This should give you an idea of how much you can afford and how much house you want to buy. But you're not done yet. The next step is to meet with a lender.

How Much Home Can You Qualify For?

Now it's time to meet with a Reputable Albuquerque Lender to see how much you can qualify for. You'll want to bring documentation with you such as tax returns for the previous two years, W2's, and recent paycheck stubs. You should also bring your budget along with a record of all your debt. The loan officer you'll meet with will want to plug these numbers into their desktop approval program to see how much you will be able to borrow.

Once they have received approval they will issue a prequalification letter. This is important, this is your passport to go look at homes with a Realtor. You'll also need to include it when you make an offer on a house.

Some Albuquerque First Time Home Buyers skip step one and go directly to step two, but  I think it's a much better idea for you to first understand what you feel like you can afford, not just what the lender will let you borrow. This will help you to stay within your means and not be pushed beyond them. It's easy to get excite when you shop and over extend yourself, but remember, you're going to have to live with the payments for many years.

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This is my first post in a series of posts for First Time Home Buyers in Albuquerque.

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Buying a home is a big step for an individual or a family. Buying your first Albuquerque Home is not a decision to be made lightly, but with information and assistance from a caring and qualified real estate professional you'll be able to feel good about finding and purchasing your first home.

Is it the right time for you to buy your first Albuquerque Home?

Buying a home is more than just purchasing a house. 

It's about settling down, putting down roots and building a "nest" for you and your family. If you think you might want to move in a year or two then you shouldn't buy, not under today's market conditions. Perhaps you've heard stories of people buying a house, owning it for two years, then selling it and making $30,000. I've heard the stories and experienced them at the closing table. Those days were exciting but they're gone for the foreseeable future. 

These days we're back to real estate basics. 

The basics say you will need to own for 5 or 6 years before you can sell your home and expect to break even or make a little money. This doesn't mean real estate is not a good investment. Historically real estate has been one of the best investments there is, it just means like any investment one of key ingredients is usually time and patience.

One reason real estate is a good investment is called leverage. 

Let's say you have $5,000 you want to invest. With $5,000 you can buy $5,000 of stock, or get a CD for $5,000, or buy a $150,000 house. The moment you buy $5,000 worth of stock or a CD with your $5,000, how much is it worth? $5,000 of course. The moment you buy a $150,000 house with your $5,000, how much is it worth? $150,000. Your initial investment is the same, yet what you've acquired is worth much, much more. This is called leverage and it's the number one reason they say real estate is a good investment. Even if the real estate market is appreciating a normal 1-2% per year, which doesn't sound too great, your return on investment is going to be better, even if the stock market is doing fine.

Is it a good time to buy an Albuquerque Home?

It is an awesome time to buy! Here's three big reasons why:

Prices are down. There's a sale going on! 

That's because there are more homes on the market than there are buyers right now. It's what's called a buyer's market. This is Economics 101 and it's based on the law of supply and demand. When there is more than 6 months of inventory it's a buyers market and prices go down. Prices are the lowest they have been in many years. However, sales are picking up and prices may be heading back up soon.

Interest rates are historically low.

Did you know even a small change in rates can effect your monthly payments in a big way. Look at these numbers for a $150,000 mortgage:                   

at 5% your principal and interest is $805
at 5.5% your principal and interest is $852
at 6% your principal and interest is $899
 
This is why home buyers and lenders talk about interest rates so much. It can make a big difference in your monthly payment. (These payment amounts are for principal and interest only and do not include taxes, homeowners insurance or mortgage insurance. More on how these effect your total payment later).
 
The $8,000 first time home buyer tax credit.

This is a refundable credit from the IRS for up to $8,000 on your taxes that you will be able to claim on the following year's tax return if you buy by April 30, 2010. Refundable means that even if you do not have any tax liability you will get the full amount in the form of a refund. There is a program sponsored by the state of New Mexico through the Mortgage Finance Authority. You can use this program to pay fro your down payment and some of your closing costs as well. Click here for more information on the first time home buyer tax credit.

I can tell you it's a great time to buy an Albuquerque Home until I'm blue in the face, but only you can decide if the time is right for you. If you think the time may be right, then watch for part two of my series tomorrow.

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First time home-buyers frequently ask me "Should I Get a home Warranty?" My answer is almost always yes. A good home warranty can protect you from costly repairs that can occur with any house, no matter how good the builder or how well built the home is.

Warranties are available on both new construction and resale homes, however the coverage can be quite different.

Builder Warranties

Some type of warranty coverage is offered by every reputable builder, although the terms of the warranties vary.

The best warranty you will find is a 1/2/10 year warranty. For the first year almost everything is covered, sometimes even paint or caulk touch ups, as long as it's right after you move in.  During the second year only plumbing and electrical issues are covered, then after that time all that remains is a structural warranty. 

Resale Home Warranties

You can almost always get a home warranty on a resale home. Have you ever seen a "For Sale" sign that says "Home Warranty Available?"

The truth of the matter is that you can get a home warranty on almost every home that's out there.

The only real questions is who's going to pay for it. Standard practice in New Mexico, until recently at least, was for the seller to pay for the buyer's home inspection and warranty.

Now buyers are paying for both or buyers are paying for inspections and sellers are paying for the warranty. It all depends on what you and your agent are able to negotiate.

Home warranties on resale homes are not as comprehensive as builder warranties, and the duration of the coverage lasts for only one year. In fact, many things are excluded from coverage altogether. For instance, lawn sprinklers are not usually covered. Windows are not usually covered. In the case of a swamp cooler or furnace only replacement parts may be covered.

Other items that are not covered are considered home owner maintenance items. Caulking, air filters, windows, seals on your roof, for instance.

However, sometimes a home warranty really pays off. For instance I had new homeowners move into their resale house, and even though inspections had been performed, the stove died the day they moved in. The home warranty company had a new stove installed in a few short days.

Know Your Coverage

Whether you buy from a builder or from a regular home-seller, you need to know what your warranty coverage is. Builders should provide you with a copy of their new homeowner manual that includes waranty information. On a resale transaction inspection and/or warranty companies will usually give you a pamphlet with the coverage explained or with a link to a website where you can read details of the coverage.

Take the time to carefully read and understand your warranty coverage before you close. It can save you time and headaches down the road.

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Are you an Albuquerque First Time Home Buyer? You need to do a little home work before you buy a house. Here are some links to resources about Crime, Sex Offenders and schools that you should check before you make an offer on a house.

Albuquerque Crime Statistics

There is probably some crime in every neighborhood. Use these links to look for patterns and frequency of crime:

www.CrimeReports.com   

www.SpotCrime.com

Albuquerque Sex Offender Information

Sex offenders are required by law to be registered. Here are two sites to check:

http://www.nmsexoffender.dps.state.nm.us/servlet/hit_serv.class

www.cabq.gov/police/asorna/

 Albuquerque School Information

The sites below have information on school report cards as well as some demographic information.

www.aps.edu

www.SchoolMatters.com

www.GreatSchools.net

www.SchoolDigger.com

It only takes a few minutes to check out a neighborhood before you buy. Hopefully you won't find anything disturbing about the area, but if you do at least you'll know and then you can decide what to do waht's right for you. If you wait until after you buy, it will be too late! 

I love working with first time home buyers, especially younger ones. Why? Because I enjoy educating Albuquerque First Time Home Buyers about the home buying process. That's why I've written so many blog posts about home buying. You can find them all by using the link below.

Complete First Time Home Buyers Guide

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With so many of them on the market right now, you might be wondering "Should I Buy a Albuquerque Short Sale?" 

First of all let me explain, the term "Short Sale" is a bit misleading. What is meant by "short" is that the seller is hoping the bank will accept an offer on the house for "short" of what is owed. It does not mean un any way that the sale will happen quickly! In fact, they can be extremely long and drawn out transactions that can take many months.

Here's a common scenario these days-The seller purchased the home recently, say in 2006, at the price peak of the Albuquerque Real Estate Market, and put little or no money down. Once house prices started to decline the owners have found themselves "upside down" on their mortgage, meaning they owe more than the home is worth. Since very few buyers will pay more for a house than they think it's worth, and banks will not lend more than the houses current market value, the sellers are left with two options: Sell at the current market value and bring the extra money to make up the difference between today's market value and what they owe to closing, or they can try to sell the house for short of what's owed. This is a "Short Sale."

One of the reasons a Short Sale is problematic is that when a bank sells a foreclosure home they have taken back, they work closely with a listing agent to determine a reasonable price for a quick sale. They have done an appraisal, gone through the legal process to foreclose, and now actually own the property.

When a seller tries to do a "short sale" they determine the price with their listing agent but without bank approval. This is because most banks will not even discuss the possibility of a short sale until there is a contract on the home from a buyer. They don't own the home, it's really not their problem yet.

When you make an offer on a short sale, then the bank begins their process once they receive your offer. They have not had the time like they've had on a foreclosure to go throught the steps they need to. These steps can be very time consuming. For instance, at Bank of America there is such a logjam that it currently takes almost three weeks for the offer to move from the fax machine to an actual person. According to one BOA employee, they are receiving 30,000 short sale propsosals per day. They are just not equipped to process that kind of volume quickly. 

A realistic timeframe for a short sale to be finalized is in the 3 or 4 month range. Update:  (It can take even longer now.  11/06/2009)

So when you ask yourself "Should I Buy an Albuquerque Short Sale house?" consider if you have 3 or 4 months minimmum to wait. If you have the time to wait and no pressing need to move, an Albuquerque short sale may be right for you. If you have a lease or a definite time frame-such as the November 30 deadline for the $8,000 first time homebuyer tax credit, you should look to other means of getting a good deal on a house.

If you're a first time home buyer you might be wondering "What Kind of Inspections Should I Get in Albuquerque New Mexico?"

This is a very important question. There are many different types of inspections, so before you write an offer you need to consider which ones you think are necessary.

Types of Inspections:

1. Full Home Inspection

The home inspector looks over the house from top to bottom, examining the roof and the major systems like the furnace and air conditioning.

2. Home Warranty Inspection

This is much like a full home inspection except the inspection report will state whether or not certain items are warrantable or not. A one-year home warranty is provided by the inspection company or by another independent warranty company.

3. Wood Destroying Insect/Dry Rot Inspection

Most people call the Wood Destroying Insect Inspection a "Termite" inspection, but it's not limited to just termites. They look for other bugs like carpenter ants too. Dry rot is decay to wood caused by fungi.

4. Mold Inspection

We do have mold in New Mexico, despite the dryness here. If you see signs of mold or an old water leak, or if you have a mold allergy, then a mold inspection is a definite must.

5. Radon Inspection

Here's a link that does a good job of describing what radon is and what danger it presents: http://www.discoverit.com/at/phi/article.html

6. Sewer Line inspection

If the house is older or there are large trees in the front yard you should have this inspection performed. The inspection company puts a camera through the sewer line so you can see if there are any obstructions like roots. 

7. Lead Based Paint Inspection

This is required by law for any home built before 1978. Please follow this link to read  more: http://www.epa.gov/lead/pubs/leadpdfe.pdf

8. Well Inspection

For properties in rural areas.

9. Septic Inspection

Required by law in New Mexico.

Who pays for the Inspections?

This varies from one market to another due to local custom. Currently in Albuquerque/Rio Rancho the seller is expected to pay for the Home Warranty Inspection and Wood Destroying Insect/Dry Rot Inspections. However, this is shifting now and in many cases the buyer is now picking up the cost for them. Other inspections can be negotiated either way, but a frequent strategy for sellers is to consent to any inspection but to require the buyer to pay for it themselves.

Who chooses the Inspection Companies?

This should be up to whichever party is paying for the inspection. Often it is the broker who chooses the inspection company for their clients or at least recommend companies they have had good experiences with previously.

What if the Inspection Reports Come Back Showing There's a Lot Wrong with the House? 

In New Mexico there are very specific instructions and procedures in the purchase agreement if this happens. A repair allowance is negotiated at the time the offer is made. If the repairs cost less than the preagreed upon amount then the seller is contractually obligated to do the repairs. If the amount for repairs exceeds the preagreed upon amount the seller doesn't have to do the repairs, but the buyer can terminate the agreement and is entitled to get their earnest money refunded to them. Or the buyer and seller can renegotiate. Sometimes the buyer and seller will renegotiate the repair allowance at this point.

Inspections and repairs can be a tricky part of a real estate transaction. A good Realtor should be there to help you navigate through the process.

I hope this post has helped you start thinking about "What Kind of Inspections Should I Get?"

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