Property Taxes...Should I Escrow or Not?

Many first time homeowners have questions about taxes + insurance and how they will impact a monthly mortgage payment. When you set up your mortgage, you may have some choices in regards to how often you pay toward your property taxes and insurance, but first it’s important to see what category you fit in to better understand your options:

Category One: If you are putting less than 20% down on your home OR if you have an FHA loan, you will likely be required to set up an escrow account with your lender. An escrow account is part of your loan paperwork and agreed upon at closing. Each month, your lender collects the required insurance and tax payments from you along with your mortgage amount. The money then gets held in an escrow account and used to pay off the insurance and property taxes either annually or semi-annually, whenever they are due. The lender takes care of these payments for you out of your escrow account and pays directly into the insurance company and county tax office for you. While these payments are collected at the same time as your monthly mortgage payment, they are technically separate. The convenience of an escrow account is that it forces you to save for these big annual or semi-annual bills every month along the way. However, many times the lender does not grant any interest on the money sitting in an escrow account whereas if it were sitting in your own private account, the same money could have some interest earning potential.

Category Two: If you are putting more than 20% down on your home or have your home paid off, you have some different options when it comes to property taxes and insurance. Instead of setting up a required escrow account, you can accumulate the money you need for insurances and taxes on your own, earning interest on that money all the way up until the time it is due. When the bill comes, you are in charge of paying the taxes directly to your county tax collector and the insurance payment directly to your insurance company. In Austin, the tax bill always arrives around Christmas and is due at the end of January. The disadvantage to this method is that it requires discipline to make monthly payments to yourself in your savings account and earmark that money for insurance and taxes. You do not want to be surprised by a hefty annual bill (right at Christmastime) and have no accumulated savings to pay it. However, avoiding escrow does ensure that your mortgage payments are consistent from month to month throughout the year. If you have an escrow account and your property tax bill or your insurance premiums suddenly jump, you might not be made aware of the change until the end of the year when you see the breakdown from the lending company.

Whatever your decision when it comes to paying insurance and property taxes, it is important to discuss your options with your realtor and financial lender to make the most financially sound decision for you!

Seasonality in Real Estate

While you might not think the seasons of the year have an influence on the price you are paying or asking for your home, it can make a big difference – in some cases, as much as 10%.

Seasonality of Real Estate—What are the Key Factors?

1. Weather-Weather impacts the seasonality of real estate differently, depending on the climate your home is in. For example, in some popular ski resort towns, homes prices can skyrocket during the winter months, while winter impacts the market in other areas negatively. Understanding how the weather and its seasons impacts real estate value is an important consideration both for buying and selling.

 2. School Year- Studies have shown the busiest moving times of the year occur during the summer, with June being one of the busiest months and July 31 the single busiest moving day.  This data means that people are most likely to shop the housing market from the beginning of May through the summer months.

 3. Holidays- Many people do not want to move or uproot their family during the holidays, which essentially eliminates the period between November and January.  Many people do not want to add a move on top of all the extra obligations of the holiday season.  However, as a buyer, the holidays would be a good time to leverage a lower priced market combined with some holiday vacation days! 

What Does Seasonality Mean for Home Buyers? 

For a home buyer, it’s better to buy in an “off season.”   As a buyer in off season, you will have more negotiating room, less competition, and overall lower prices for the houses on the market during the off season. In addition, sellers may be more willing to give more concessions such as money for repairs or a longer closing period in order to firm up a contract on a house during the leaner selling months.

What Does Seasonality Mean for Home Sellers? 

If you are a seller, you want to obviously sell during those summer months, when the competition is fierce and the market is hot.   Multiple offers and bidding wars are your friend as a seller.  However, the downside is that when you are a seller, it usually means that you are also a buyer.   In an ideal world, sell in the spring/summer months to make the most profit on the home that you are selling. Then find a 4-6 month temporary living arrangement that would allow you to wait to buy until the winter or holiday months when seasonality and lower prices are typically on your side as a buyer.

I’m Thinking of Buying/Selling. What Are My Next Steps?

If you are working with a real estate agent, they should be able to provide you with the market metrics for different seasons in your area. By comparing different months and years, you’ll be able to identify where there are significant peaks and lows in your current market and determine when your areas ideal periods for both selling and buying. Interested in the Austin area? Contact me today 512-817-0855. I would be happy to provide you with market trends of any area in Austin and a seasonal analysis of the best time to buy or sell!

The Four Keys To a Successful Inspection

As a prospective home owner, what key items should you look for when the inspection report comes back?  How do you know what items might be potential deal breakers and which are simple repairs? I recommend you start by looking into these 4 categories of major home repairs.

1.     Roof- How old is the roof?  Has it had any previous repair? Have there been any leaks due to problems with the roof? 

A standard roof life is 15-18 years and can cost between $6,000 and $16,000 to repair, depending on the size of the home and on insurance coverage.

2.     Foundation- Has there been any significant shifting or cracks along non-natural seam lines?  Does the floor dip or shift in some parts?

You are looking for the inspection report to say that there has not been any standard significant movement of the foundation.

3.     Electrical- Is the wiring aluminum or copper? Copper wiring is more widely used in homes today due to its greater conductivity and heat resistance.   Aluminum wiring can still be found in some older homes.  Aluminum is much harder to repair than copper wiring, does not conduct energy as well, can tend to overheat and cause damage, and greater care has to be taken to install it properly in the home.  

Ideally you are looking for the inspection report to say that the home uses copper wiring and that no significant electrical issues were detected.

4.     Plumbing- Is the plumbing cast iron or PVC?

Cast iron plumbing will eventually rust from the inside out and should be cleaned out annually to remove build up.  Cast iron was used heavily in construction during the WWII era, so many older homes might have cast iron plumbing in use.  Cast iron is not a deal breaker, but it requires more upkeep and maintenance and can require contractors to dig underground through the slab to get to the pipes. 

Look for the use of PVC piping in the inspection report. If cast iron is used, make sure you understand how it can be accessed for future inspection and repairs and get the inspector to give you a status report on the integrity and lifespan of the cast iron used.