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Buying a home can be quite a complicated procedure, and can raise many questions you may not have ever thought about. This article will cover the most frequently asked questions among new home buyers.
Finding the Right Home - FAQs
Q: How do you choose between buying and renting?
A: Home ownership offers tax benefits as well as the freedom to make decisions about your home. An advantage of renting is not worrying about maintenance and other financial obligations associated with owning property.
There also are a number of economic considerations. Unlike renters, home owners who secure a fixed-rate loan can lock in their monthly housing costs and make prudent investment plans knowing these expenses will not increase substantially.
Home ownership is a highly leveraged investment that can yield substantial profit on a nominal front-end investment. However, such returns depend on home-price appreciation.
"For some people, owning a home is a great feeling," writes Mitchell A. Levy in his book, "Home Ownership: The American Myth," Myth Breakers Press, Cupertino, Calif.; 1993.
"It does, however, have a price. Besides the maintenance headache, the amount of after-tax money paid to the lender is usually greater than the amount of money otherwise paid in rent," Levy concludes.
As for evaluating the risk associated with home ownership, David T. Schumacher and Erik Page Bucy write in their book "The Buy & Hold Real Estate Strategy," John Wiley & Sons, New York; 1992, that "good property located in growth areas should be regarded as an investment as opposed to a speculation or gamble."
The authors recommend that prospective buyers spend a few months investigating a community. Many people make the mistake of buying in the wrong area.
"Just because certain properties are high-priced doesn't necessarily mean they have some inherent advantage," the authors write. "One property may cost more than another today, but will it still be worth more down the line?"
Q: What are the pros and cons of adding on or buying new?
A: Before making a choice between adding on to an existing home or buying a larger one, consider these questions:
* How much money is available, either from cash reserves or through a home improvement loan, to remodel the current house?
* How much additional space is required? Would the foundation support a second floor or does the lot have room to expand on the ground level?
* What do local zoning and building ordinances permit?
* How much equity already exists in the property?
* Are there affordable properties for sale that would satisfy housing needs?
Ultimately, the decision should be based on individual needs, the extent of work involved and what will add the most value. According to Remodeling magazine's annual "Cost vs. Value Report," remodeling a home not only improves its livability but its curb appeal with potential buyers. The highest paybacks come from updating kitchens and baths and, most recently, adding on a home office, according to the survey.
For more information, check out "The Do-able Renewable Home," a free booklet available from the American Association of Retired Persons, Fulfillment Department, 601 E St., N.W., Washington, DC 20049; (202) 434-2277.
Q: What do all of those real estate acronyms in the ads mean?
A: If you find yourself stumbling over weird acronyms in a real estate listing, don't be alarmed. There is method to the madness of this shorthand (which is mostly adopted by sellers to save money in advertising charges). Here are some abbreviations and the meaning of each, taken from a recent newspaper classified section:
* assum. fin. -- assumable financing
* dk -- deck
* gar -- garage (garden is usually abbreviated "gard")
* expansion pot'l -- may be extra space on the lot, or possibly vertical potential for a top floor or room addition. Verify actual potential by checking local zoning restrictions prior to purchase.
* fab pentrm -- fabulous pentroom, a room on top, underneath the roof, that sometimes has views
* FDR -- formal dining room (not the former president)
* frplc, fplc, FP -- fireplace
* grmet kit -- gourmet kitchen
* HDW, HWF, Hdwd -- hardwood floors
* hi ceils -- high ceilings
* In-law potential -- potential for a separate apartment. Sometimes, local zoning codes restrict rentals of such units so be sure the conversion is legal first.
* large E-2 plan -- this is one of several floor plans available in a specific building
* lsd pkg. -- leased parking area, may come with an additional cost
* lo dues -- find out just how low these homeowner's dues are, and in comparison to what?
* nr bst schls -- near the best schools
* pvt -- private
* pwdr rm -- powder room, or half-bath
* upr- upper floor
* vw, vu, vws, vus -- view(s)
* Wow! -- better check this one out.
Resources:
* "Real Estate's Ambiguous Language You Oughtta Understand," Glennon H. Neubauer, Ethos Group Publishing, Diamond Bar, CA; 1993.
Q: Do we dig deep and buy a dream home or settle for a starter home?
A: Choosing between a smaller house in an affluent neighborhood, an older, bigger house in a more working-class community or a brand-new home is not easy. If you're in this situation, start by examining your priorities and asking the following questions:
* Is the surrounding neighborhood or the home itself the most important consideration?
* Is each of the neighborhoods safe?
* Is quality of the schools an issue?
* Do any of the areas seem to attract more families with children or adult residents? And where do you fit in?
As for the return on your investment, home-price appreciation is hard to predict. In the late 1980s, the more expensive move-up housing appreciated wildly. But during the recession that followed, smaller homes tended to hold their value better than more expensive ones.
Q: How do I get the real scoop on homes I am looking at?
A: Home inspections, seller disclosure requirements and the agent's experience will help. Disclosure laws vary by state, but in some states, the law requires the seller to complete a real estate transfer disclosure statement. Here is a summary of the things you could expect to see in a disclosure form:
* In the kitchen -- a range, oven, microwave, dishwasher, garbage disposal, trash compactor.
* Safety features such as burglar and fire alarms, smoke detectors, sprinklers, security gate, window screens and intercom.
* The presence of a TV antenna or satellite dish, carport or garage, automatic garage door opener, rain gutters, sump pump.
* Amenities such as a pool or spa, patio or deck, built-in barbeque and fireplaces.
* Type of heating, condition of electrical wiring, gas supply and presence of any external power source, such as solar panels.
* The type of water heater, water supply, sewer system or septic tank also should be disclosed.
Sellers also are required to indicate any significant defects or malfunctions existing in the home's major systems. A checklist specifies interior and exterior walls, ceilings, roof, insulation, windows, fences, driveway, sidewalks, floors, doors, foundation, as well as the electrical and plumbing systems.
The form also asks sellers to note the presence of environmental hazards, walls or fences shared with adjoining landowners, any encroachments or easements, room additions or repairs made without the necessary permits or not in compliance with building codes, zoning violations, citations against the property and lawsuits against the seller affecting the property.
Also look for, or ask about, settling, sliding or soil problems, flooding or drainage problems and any major damage resulting from earthquakes, floods or landslides.
People buying a condominium must be told about covenants, codes and restrictions or other deed restrictions.
It's important to note that the simple idea of disclosing defects has broadened significantly in recent years. Many jurisdictions have their own mandated disclosure forms as do many brokers and agents. Also, the home inspection and home warranty industries have grown significantly to accommodate increased demand from cautious buyers. Be sure to ask questions about anything that remains unclear or does not seem to be properly addressed by the forms provided to you.
Whom to Contact (How to Buy) - FAQs
Q: What standards do appraisers use to estimate value?
A: Appraisers use several factors when estimating value including historical records, property performance, condition of the home and indices that forecast future value. For detailed information on appraisal standards, contact the Appraisal Institute at 875 N. Michigan Ave., Suite 2400, Chicago, IL 60611-1980; (312) 335-4458.
Q: Where do I get information about housing discrimination?
A: For information about housing discrimination, call the U.S. Department of Justice at (202) 514-2000, 950 Pennsylvania Ave., NW DC 20530 or your local U.S. Department of Housing and Urban Development office.
For detailed information, the booklet, "Your Loan is Denied, Defending Yourself Against Mortgage Lending Discrimination," is available from the Center for Investigative Reporting, 500 Howard Street, Suite 206, San Francisco, CA 94105-3008 or call (415) 543-1200.
Q: Where do I get information about closing costs?
A: For more on closing costs, ask for the "Consumer's Guide to Mortgage Settlement Costs," Federal Reserve Bank of San Francisco, Public Information Department, P.O. Box 7702, San Francisco, CA 94120, or call (415) 974-2163.
Q: Where do I get information on housing market stats?
A: A real estate agent is a good source for finding out the status of the local housing market. So is your statewide association of REALTORS®, most of which are continuously compiling such statistics from local real estate boards.
For overall housing statistics, U.S. Housing Markets regularly publishes quarterly reports on home building and home buying. Your local builders association probably gets this report. If not, the housing research firm is located in Canton, Mich.; call (800) 755-6269 for information; the firm also maintains an Internet site. Finally, check with the U.S. Bureau of the Census in Washington, D.C.; (301) 495-4700. The census bureau also maintains a site on the Internet. The Chicago Title company also has published a pamphlet, "Who's Buying Homes in America." Write Chicago Title and Trust Family of Title Insurers, 171 North Clark St., Chicago, IL 60601-3294.
Q: How do I reach the IRS?
A: To reach the Internal Revenue Service, call (800) TAX-1040.
Q: Where do I get information about finding a real estate attorney?
A: To find a real estate attorney, contact your local bar association, which may offer local referral services. You may also ask friends or your real estate agent for their recommendations. When you have several names, call each to find out about fees and their level of experience.
Q: Where do I get information on home market stats and trends?
A: A real estate agent is a good source for finding out the status of the local housing market. So is your statewide association of REALTORS®, most of which are continuously compiling such statistics from local real estate boards.
For overall housing statistics, U.S. Housing Markets regularly publishes quarterly reports on home building and home buying. Your local builders association probably gets this report. If not, the housing research firm is located in 4200 Koppernick Rd #40, Canton,Mich.48187; call (800) 755-6269 for information; the firm also maintains an Internet site. Finally, check with the U.S. Bureau of the Census in Washington, D.C.; (301) 495-4700. The census bureau also maintains a site on the Internet. The Chicago Title company also has published a pamphlet, "Who's Buying Homes in America." Write Chicago Title and Trust Family of Title Insurers, 171 North Clark St., Chicago, IL 60601-3294.
Q: How do I find a home inspector?
A: Your realty agent is one source. Inspectors are listed in the yellow pages. You can ask for referrals from friends. Ask for their credentials, such as contractor's license or engineering certificate. Also, check out their references.
Property Taxes - FAQs
Q: How do property taxes work?
A: Property taxes are what most homeowners in the United States pay for the privilege of owning a piece of real estate, on average 1.5 percent of the property's current market value. These annual local assessments by county or local authorities help pay for public services and are calculated using a variety of formulas.
Q: Are property taxes deductible?
A: Property taxes on all real estate, including those levied by state and local governments and school districts are usually fully deductible against current income taxes. Check with your tax professional.
Q: Where can I learn more about appealing my property taxes?
A: Contact your local tax assessor's office to see what procedures to follow to appeal your property tax assessment. You may be able to appeal your assessment informally. Mostly likely, however, you will have to go through a formal tax-appeal process, which begins with an appeal filed with the appropriate assessment appeals board.
Q: How is a home's value determined?
A: You have several ways to determine the value of a home.
An appraisal is a professional estimate of a property's market value, based on recent sales of comparable properties, location, square footage and construction quality. This service varies in cost depending on the price of the home. On average, an appraisal costs about $300 for a $250,000 house.
A comparative market analysis is an informal estimate of market value performed by a real estate agent based on similar sales and property attributes. Most agents offer free analyses in the hopes of winning your business.
You also can get a comparable sales report for a fee from private companies that specialize in real estate data. You also can find comparable sales information available on various real estate Internet sites.
Q: Are taxes on second homes deductible?
A: Interest and property taxes may be deductible on a second home if you itemize. Check with your accountant or tax adviser for specifics.
Q: What is an impound account?
A: An impound account is a trust account established by the lender to hold money to pay for real estate taxes, and mortgage and homeowners insurance premiums as they are received each month.
Q: Do all loans require impound accounts?
A: If you are taking out a FHA or VA loan, the lender can require an impound account to pay real estate taxes and hazard insurance premiums, as with a standard loan. Most conventional loans do not require an impound account.
Tenants-In-Common and Co-ops - FAQs
Q: Where do I get information on co-ops?
A: For information on co-operative housing, contact the National Association of Housing Cooperatives, 1614 King St., Alexandria, VA 22314; (703) 549-5201.
Q: Can a co-owner force someone off a shared deed?
A: In some states, a co-owner often can force the sale of a shared property by filing a so-called partition action. In such a situation, if the severance is granted, the property would be sold and the owners would split the proceeds proportionate to their interest in the property.
You should check your title for any references to such a severance action. You may need to consult a real estate attorney.
Fixer-Uppers - FAQs
Q: Where are fixer-uppers found?
A: You can find distressed properties or fixer-uppers in most communities, even wealthier neighborhoods. A distressed property is one that has been poorly maintained and has a lower market value than other houses in the immediate area.
Ascertaining whether the property you're interested in is a wise investment takes some work. You need to figure what the average house in a given area sells for, as well as what the most desirable houses in that area are like and what they cost.
Some experts suggest that buyers who take this route try to find a "cosmetic fixer" that can be completely refurbished with paint, wallpaper, new floor and window coverings, landscaping and new appliances. You should avoid run-down houses that need major structural repairs. A house price that looks too good to be true probably is. A smart buyer will find out why before buying it.
The basic strategy for a fixer is to find the least desirable house in the most desirable neighborhood, and then decide if the expenses needed to bring the value of that property up to its full potential market value are within one's rehab budget.
Q: Are there programs for fixer-uppers?
A: If you need a home loan to buy a "fixer-upper" and remodel it, look at the U.S. Department of Housing and Urban Development's Section 203(K) loan program. The program is designed to facilitate major structural rehabilitation of houses with one to four units that are more than one year old. Condominiums are not eligible.
A 203(K) loan is usually done as a combination loan to purchase a "fixer-upper" property "as is" and rehabilitate it, or to refinance a temporary loan to buy the property and do the rehabilitation. It can also be done as a rehabilitation-only loan.
Investors must put 15 percent down while owner-occupants are required to come up with only 3 to 5 percent. HUD requires that a minimum of $5,000 be spent on improvements.
Two appraisals are required. Plans and specifications for the proposed work must be submitted for architectural review and cost estimation. Mortgage proceeds are advanced periodically during the rehabilitation period to finance the construction costs.
Q: What kind of return is there on remodeling jobs?
A: Remodeling magazine produces an annual "Cost vs. Value Report'' that answers just that question. The most important point to remember is that remodeling a home not only improves its livability for you but its curb appeal with a potential buyer down the road.
Most recently, the highest remodeling paybacks have come from updating kitchens and baths, home-office additions and extra amenities in older homes. While home offices are a relatively new remodeling trend, for example, you could expect to recoup 58 percent of the cost of adding a home office, according to the survey.
Q: Are there gov't programs for rehab?
A: The U.S. Department of Housing and Urban Development's Section 203 (K) rehabilitation loan program is designed to facilitate major structural rehabilitation of houses with one to four units that are more than one year old. Condominiums are not eligible.
The 203(K) loan is usually done as a combination loan to purchase a fixer-upper property "as is" and rehabilitate it, or to refinance a temporary loan to buy the property and do the rehabilitation. It can also be done as a rehabilitation-only loan.
Plans and specifications for the proposed work must be submitted for architectural review and cost estimation. Mortgage proceeds are advanced periodically during the rehabilitation period to finance the construction costs.
For a list of participating lenders, call HUD at (202) 708-2720.
If you are a veteran, loans from the U.S. Department of Veterans Affairs also can be used to buy a home, build a home, improve a home or to refinance an existing loan. VA loans frequently offer lower interest rates than ordinarily available with other kinds of loans. To qualify for a loan, the first step is to apply for a Certificate of Eligibility.
Another program is the Fedeal Housing Administration's Title 1 FHA loan program.
Resources:
* "Rehab a Home With HUD's 203(K)" brochure, U.S. Department of Housing and Urban Development, 7th and D streets S.W., Washington, DC 20410.
Q: What are some resources for info on home improvements?
A: If you're getting ready to embark on a home improvement project involving contracting help, "Ready, Set, Build: A Consumer's Guide to Home Improvement Planning Contracts" lays out a road map for selecting the right contractor, obtaining competitive bids up to what to include in a contract. There also is information on consumer rights, liens and financing.
The book is available for $9.95 through Consumer Press and Women's Publications, Inc., Dept. SR01, 13326 Southwest 28th St., Fort Lauderdale, FL 33330-1102; (954) 370-9153.
Resources:
* Profiting From Real Estate Rehab, Sandra M. Brassfield, John Wiley & Sons Inc., New York; 1992.
* Remodeling magazine's annual "Cost vs. Value Report", available for a nominal fee from the magazine; call (202) 736-3447 to order a copy.
Q: Are there any special tax breaks for historic rehab?
A: Qualified rehabilitated buildings and certified historic structures currently enjoy a 20 percent investment tax credit for qualified rehabilitation expenses. A historic structure is one listed in the National Register of Historic Places or so designated by an appropriate state or local historic district also certified by the government.
The tax code does not allow deductions for the demolition or significant alternation of a historic structure. Check with your accountant or tax professional for any changes that may have occurred.
Resources:
* National Trust for Historic Preservation, Washington, D.C.; (202) 588-6000.
Q: What are some guidelines to follow when trying to find a contractor?
A: While hiring contractors recommended by friends is usually a safe route, never hire a construction professional without first checking him or her out first. If your state has a licensing board for contractors, call to find out if there are any outstanding complaints against that license holder. Also, call your local Better Business Bureau to see if there are any complaints on file.
If you are satisfied with the answers you find there, interview the contractor candidates. Ask what kind of worker's compensation insurance they carry and get policy and insurance company phone numbers so you can verify the information. If they are not covered, you could be liable for any work-related injury incurred during the project. Also be sure that the contractor has an umbrella general liability policy.
If they pass the insurance hurdle, next check some of their references. A good contractor will be happy to provide as many as you want.
Finally, don't let yourself be rushed into making a decision no matter how competitive the market may seem. Also, never pay a deposit to a contractor at the first meeting. You may end up losing your money.
Q: Are fixers a good idea in bad areas?
A: Distressed properties or fixer-uppers are everywhere, even in wealthier neighborhoods. Such properties are poorly maintained and have a lower market value than other houses in the neighborhood.
Many experts recommend that buyers find the least desirable house in the best neighborhood and then decide if the expenses needed to bring the value of that property up to its full potential market value are within one's budget. Most experts say inexperienced buyers should avoid run-down houses that need major structural repairs and instead look for properties that only require cosmetic fixes.
Lease Options - FAQs
Q: What is a lease option?
A: When a renter signs a lease with an option to purchase the property for a specific price within a certain time frame, that is called a lease option. In most lease-option situations, a portion of the rent is applied to a future down payment.
Lease options are most popular among buyers who don't have enough funds for a down payment and closing costs.
Q: How do lease options work and what are the benefits?
A: Most lease-option agreements specify that a portion of the rent on the property in question is applied toward the purchase if the option is exercised. This is referred to as rent credit. Institutional lenders accept rent credits as part of the down payment if rental payments exceed the market rent and if a valid lease-purchase agreement is in effect, a copy of which must be attached to the loan application.
For sellers, lease options give them several advantages, especially in a slow market. These include a monthly rent higher than market rent and top-market value for the property. Also, the renter is more likely to treat the property like an owner.
Condominiums & Townhomes - FAQs
Q: How do you choose between condos and single family homes?
A: Using appreciation as a measure, condominiums in some areas have been as profitable an investment as single family homes in the last five years. And in some markets, condos appreciated even more, according to some experts.
While single family homes have been the preferred investment by home buyers, changing demographics are helping make condos more popular, especially among single home buyers, empty nesters and first-time buyers in high-priced markets.
Also, the condominium community has worked hard in the last few years to overcome image problems brought on by homeowners association and developer disputes as well as all too frequent construction-defect litigation.
Q: Are condominiums risky to buy?
A: While condos never had the kind of appreciation experienced by single-family homes in the go-go 1980s, most ultimately have not lost value, say some experts. And with high prices in many urban markets and more single home buyers in the market than ever before, the market for condos is strong.
As with any home purchase, you should do your homework about the neighborhood or development before you buy. In the case of condominiums, it is important to read the past six months of homeowners association minutes to see how effective the board is and to learn about any possibly detracting issues (such as protracted litigation with the developer).
The condominium community has worked hard in the last few years to overcome image problems brought on by disputes and lawsuits. Associations are becoming more sophisticated about property management and taking steps to prevent legal problems and disputes.
Other resources:
* Community Associations Institute, 1630 Duke St., Alexandria, VA 22314; (703) 548-8600.
* "The Condominium Bluebook," Branden E. Bickel, B&B Publications, San Francisco, CA; 1993.
Q: Do condos have to be made accessible to the disabled?
A: The 1990 Americans with Disabilities Act does not require strictly residential apartments and single-family homes to be made accessible. But all new construction of public accommodations or commercial projects (such as a government building or a shopping mall) must be accessible. New multi-family construction also falls into this category.
In all states, the Federal Fair Housing Act provides protection against discrimination for people with physical or mental disabilities. Discrimination includes the refusal to make reasonable modifications to buildings that aren't accessible to the disabled.
Two educational brochures, "Housing Rights" and "Discrimination is Against the Law," are available through the Department of Fair Employment and Housing by calling (800) 884-1684.
Q: Can condos ban smoking?
A: A homeowners association's board of directors can restrict smoking if it applies to indoor common spaces such as hallways or recreation rooms. Outdoor spaces are a different story, say legal experts. Any restriction would probably hinge on local laws (i.e. if a city banned smoking outdoors, a homeowners association probably could restrict smoking in its outdoor spaces).
Typical covenants, codes and restrictions (CC&Rs), which govern condo associations, give the board authority to make and enforce reasonable rules for the use of common property. But that would not apply to interior spaces owned by smokers themselves.
Resources:
* Common-interest development brochure available free from California Department of Real Estate, Book Orders, P.O. Box 187006, Sacramento, CA 95818-7006; (916) 227-0938.
* Various Internet sites specializing in common-interest developments, such as those operated by the Community Associations Institute and CIDNetworks.
Q: Can a condo association ban nudity?
A: Could you sunbathe in the nude on your own balcony? Not necessarily. In a condominium development, a balcony is not considered private property but common property assigned to your exclusive use but a common area nontheless.
Covenants, codes and restrictions (CC&Rs) usually spell out what activities can and cannot be conducted on common property. Some associations prevent people from barbecuing on their balconies or hanging large plants from the railings. However, the larger issue of regulating personal conduct is not so clear-cut. It literally depends on what side of the fence you're on.
If the sunbather can be seen from a public vantage point -- not by someone who must climb a tree or peer through binoculars -- then the rule probably would be considered reasonable, say legal experts.
Incidentally, there are places where nudity is tolerated but again, only out of public view.
Q: Are condos a good investment?
A: Condominiums have held their value as an investment despite economic downturns and problems with some associations. In fact, condos have appreciated more in the last few years than when they first came on the scene in the late 1970s and early 1980s, experts say.
While there are lots of reports about homeowners association disputes and construction-defect problems, the industry has worked hard to turn its image around. Elected volunteers who serve on association boards are better trained at handling complex budget and legal issues, for example, while many boards go to great lengths to avoid the kind of protracted and expensive litigation that has hurt resale value in the past.
Meanwhile, changing demographics are making condominiums more attractive investments for single home buyers, empty nesters and first-time buyers in expensive markets.
Q: Where do I get information on condo association laws?
A: Resources:
* "The Condominium Bluebook" by Branden E. Bickel, B&B Publications, San Francisco, CA; 1994; call (415) 433-1233).
* Community Associations Institute, Alexandria, VA; (703) 548-8600.
Q: Where do I get information on condos?
A: The major interest group for condominium projects and other so-called common-intereset developments is the nonprofit Community Associations Institute,1630 Duke St., Alexandria, VA 22314; (703) 548-8600. Also, check the Internet where CAI operates an informative site as does CIDNetworks.
Q: Are one-bedroom condominiums a good investment?
A: One-bedroom condominiums historically have not been considered as good an investment as condos with two bedrooms or more. But in high-cost markets, such as Manhattan or the San Francisco Bay Area, one-bedroom condos have proven to be equally good investments. Helping that along are changing demographic trends. With more single home buyers in the market today than at any time in history, there is more demand for one-bedroom condos.
Q: How do I figure out the homeowners association?
A: Learn everything you can about the homeowners association before you buy into a development governed by one. The association's financial, political and legal conditions are very important to your investment and quality of life.
When run properly, homeowners associations maintain the common grounds and keep civility in the complex. If you follow the rules, the association should not intrude on your privacy or cost you too much in association dues.
Poorly managed associations can drag down property values and make living there difficult for residents. Start by studying the association's covenants, codes and restrictions, or CC&Rs, and find out if you can live by them. For example, if the rules prohibit loud music after a certain hour and you like to play your CDs late at night, this may not be the place for you. Don't move in thinking you can get away with violating the rules or change them later because you may find yourself in turmoil with determined neighbors firmly in control of the association board.
Find out all you can about the association's finances. Beyond reviewing the budget, talk to the association treasurer and find out if dues are expected to increase and if any special assessments are planned. Ask if special inspections have revealed problems with roofs or plumbing that may cause a dues hike or special assessment later on.
Call and meet with the association president. If you are the type of person who despises intrusions into your private life and the president seems more interested in gossip about the residents than maintaining the property, this may not be the right condo complex for you.
Speak with residents to get their views on the association's finances, its property manager, how it operates and any politics. Associations are volunteer organizations with elected boards, like a mini-government, so politics can enter the picture and spoil a good thing.
Lastly, take some time to understand how homeowners associations are organized and how they conduct business. Like all real estate investments, the more you know the better off you are.
Insurance - FAQs
Q: What kind of home insurance should I get?
A: A standard homeowners policy protects against fire, lightning, wind, storms, hail, explosions, riots, aircraft wrecks, vehicle crashes, smoke, vandalism, theft, breaking glass, falling objects, weight of snow or sleet, collapsing buildings, freezing of plumbing fixtures, electrical damage and water damage from plumbing, heating or air conditioning systems, according to the Insurance Information Institute, a Washington, D.C.-based nonprofit group for the insurance industry.
Such policies are "all-risk" policies, which cover everything except earthquakes, floods, war and nuclear accidents.
A basic policy can be expanded to include additional coverage, such as for floods and earthquakes and even workers' compensation for servants or contractors. Home-based business-coverage, an increasingly popular rider, does not cover liability associated with the business.
Insurance experts recommend that homeowners obtain insurance equal to the full replacement value of the home. On a 2,000-square-foot home,for example, if the replacement cost is $80 per square foot, the house should be insured for at least $160,000.
For personal items, homeowners can increase their coverage beyond the depreciated value of items such as televisions or furniture by purchasing a "replacement-cost endorsement" on personal property.
Some experts recommend an inflation rider, which increases coverage as the home increases in value..
Making an Offer - FAQs
Q: Is a low offer a good idea?
A: While your low offer in a normal market might be rejected immediately, in a buyer's market a motivated seller will either accept or make a counteroffer.
Full-price offers or above are more likely to be accepted by the seller. But there are other considerations involved:
* Is the offer contingent upon anything, such as the sale of the buyer's current house? If so, a low offer, even a full price offer, may not be as attractive as an offer without that condition.
* Is the offer made on the house as is, or does the buyer want the seller to make some repairs or lower the price instead?
* Is the offer all cash, meaning the buyer has waived the financing contingency? If so, then an offer at less than the asking price may be more attractive to the seller than a full-price offer with a financing contingency.
Q: What contingencies should be put in an offer?
A: Most offers include two standard contingencies: a financing contingency, which makes the sale dependent on the buyers' ability to obtain a loan commitment from a lender, and an inspection contingency, which allows buyers to have professionals inspect the property to their satisfaction.
A buyer could forfeit his or her deposit under certain circumstances, such as backing out of the deal for a reason not stipulated in the contract.
The purchase contract must include the seller's responsibilities, such things as passing clear title, maintaining the property in its present condition until closing and making any agreed-upon repairs to the property.
Q: Whose obligation is it to disclose pertinent information about a property?
A: Obligations to disclose information about a property vary from state to state.
Under the strictest laws, the seller and the seller's broker, if there is one, are required to disclose all facts materially affecting the value or desirability of the property which are known or accessible only to him.
Items sellers often disclose include: homeowners association dues; whether or not work done on the house meets local building codes and permits requirements; the presence of any neighborhood nuisances or noises which a prospective buyer might not notice, such as a dog that barks every night or poor TV reception; any death within three years on the property and any restrictions on the use of the property, such as zoning ordinances or association rules.
It is wise to check your state's disclosure rules prior to a home purchase.
Q: How do you find out the value of a troubled property?
A: Buyers considering a foreclosure property should obtain as much information as possible from the lender about the range of bids being sought.
It also is important to examine the property. If you are unable to get into a foreclosure property, check with surrounding neighbors about the property's condition.
It also is possible to do your own cost comparison through researching comparable properties recorded at local county recorder's and assessor's offices, or through Internet sites specializing in property records.
Q: Are low-ball offers advisable?
A: A low-ball offer is a term used to describe an offer on a house that is substantially less than the asking price.
While any offer can be presented, a low-ball offer can sour a prospective sale and discourage the seller from negotiating at all. Unless the house is very overpriced, the offer will probably be rejected.
You should always do your homework about comparable prices in the neighborhood before making any offer. It also pays to know something about the seller's motivation. A lower price with a speedy escrow, for example, may motivate a seller who must move, has another house under contract or must sell quickly for other reasons.
Q: What is the difference between list and sales prices?
A: The list price is the price tag put on a house in a real estate listing; it usually is only an estimate of what the seller would like to get for the property. The sales price is the amount a property actually sells for. It may be the same as the listing price, or higher or lower, depending on how accurately the property was originally priced and on market conditions.
A seller may need to adjust the listing price if there have been no offers within the first few months of the property's listing period.
Q: Can you buy homes below market?
A: While a typical buyer may look at five to 10 homes before making an offer, investors who make bargain buys usually go through many more. Most experts agree it takes a lot of determination to find a real "bargain." There are a number of ways to buy a bargain property:
* Buy a fixer-upper in a transitional neighborhood, improve it and keep it or resell at a higher price.
* Buy a foreclosure property (after doing your research carefully).
* Buy a house due to be torn down and move it to a new lot.
* Buy a partial interest in a piece of real estate, such as part of a tenants-in-common partnership.
* Buy a leftover house in a new-home development.
Q: Who gets the furnishings when a home is sold?
A: Fixtures, any kind of personal property that is permanently attached to a house (such as drapery rods, built-in bookcases, tacked-down carpeting or a furnace), automatically stay with the house unless specified otherwise in the sales contract. But you can consider anything that is not nailed down negotiable. This most often involves appliances that are not built in (washer, dryer, refrigerator, for example), although some sellers will be interested in negotiating for other items, such as a piano.
Q: What are some tips on negotiation?
A: The more you know about a seller's motivation, the stronger a negotiating position you are in. For example, a seller who must move quickly due to a job transfer may be amenable to a lower price with a speedy escrow. Other so-called "motivated sellers" include people going through a divorce or who have already purchased another home.
Remember, that the listing price is what the seller would like to receive but is not necessarily what they will settle for. Before making an offer, check the recent sales prices of comparable homes in the neighborhood to see how the seller's asking price stacks up.
Some experts discourage making deliberate low-ball offers. While such an offer can be presented, it can also sour the sale and discourage the seller from negotiating at all.
Q: What are the standard contingencies?
A: Most offers include two standard contingencies: a financing contingency, which makes the sale dependent on the buyers' ability to obtain a loan commitment from a lender, and an inspection contingency, which allows buyers to have professionals inspect the property to their satisfaction.
A buyer could forfeit his or her deposit under certain circumstances, such as backing out of the deal for a reason not stipulated in the contract.
The purchase contract must include the seller's responsibilities, such things as passing clear title, maintaining the property in its present condition until closing and making any agreed-upon repairs to the property.
Q: What is the difference between list price, sales price and appraised value?
A: The list price is a seller's advertised price, a figure that usually is only a rough estimate of what the seller wants to get. Sellers can price high, low or close to what they hope to get. To judge whether the list price is a fair one, be sure to consult comparable sales prices in the area.
The sales price is the amount of money you as a buyer would pay for a property.
The appraisal value is a certified appraiser's estimate of the worth of a property, and is based on comparable sales, the condition of the property and numerous other factors.
Negotiating and Closing a Good Deal - FAQs
Q: What contingencies should be put in an offer?
A: Most offers include two standard contingencies: a financing contingency, which makes the sale dependent on the buyers' ability to obtain a loan commitment from a lender, and an inspection contingency, which allows buyers to have professionals inspect the property to their satisfaction.
A buyer could forfeit his or her deposit under certain circumstances, such as backing out of the deal for a reason not stipulated in the contract.
The purchase contract must include the seller's responsibilities, such things as passing clear title, maintaining the property in its present condition until closing and making any agreed-upon repairs to the property.
Q: How is the price set?
A: It's very important to price your home appropriately relative to current market conditions. Because the real estate market is continually changing, and market fluctuations have an effect on property values, it's imperative to select your list price based on the most recent comparable sales in your neighborhood.
A comparative market analysis provides the background data on which to base your list-price decision. Study the comparable sales material presented to you by the different agents you interviewed initially. If the analyses are more than two or three months old, have your agent update the report for you.
If all agents agreed on a price range for your home, go with the consensus. Watch out for an agent whose opinion of value is considerably higher than the others.
Q: Are low-ball offers advisable?
A: A low-ball offer is a term used to describe an offer on a house that is substantially less than the asking price.
While any offer can be presented, a low-ball offer can sour a prospective sale and discourage the seller from negotiating at all. Unless the house is very overpriced, the offer will probably be rejected.
You should always do your homework about comparable prices in the neighborhood before making any offer. It also pays to know something about the seller's motivation. A lower price with a speedy escrow, for example, may motivate a seller who must move, has another house under contract or must sell quickly for other reasons.
Q: Are interest rates negotiable?
A: Some lenders are willing to negotiate on both the loan rate and the number of points but this isn't typical among established lenders who set their rates like large corporations set the prices on their goods. Nevertheless, it pays to shop around for loan rates and know the market before you go in to talk to a lender. You should always look at the combination of interest rate and points and get the best deal possible.
The interest rate is much more open to negotiation on purchases that involve seller financing. These usually are based on market rates but some flexibility exists when negotiating such a deal.
When shopping for rates, look for published rates in local newspapers or check the growing number of Internet sites that publish such information.
Q: Can you buy homes below market?
A: While a typical buyer may look at five to 10 homes before making an offer, investors who make bargain buys usually go through many more. Most experts agree it takes a lot of determination to find a real "bargain." There are a number of ways to buy a bargain property:
* Buy a fixer-upper in a transitional neighborhood, improve it and keep it or resell at a higher price.
* Buy a foreclosure property (after doing your research carefully).
* Buy a house due to be torn down and move it to a new lot.
* Buy a partial interest in a piece of real estate, such as part of a tenants-in-common partnership.
* Buy a leftover house in a new-home development.
Q: Can you negotiate the price on new homes?
A: It can be difficult to negotiate the sales price with a developer because they may claim their prices are based on fixed construction costs. But it doesn't hurt to try.
Experts say builders are more likely to be flexible on price at the very beginning and the very end of a development project. Early on, most developers want to move people in quickly so the project picks up momentum. Later, developers may be more inclined to accept lower offers when only a few units remain.
If negotiating the price doesn't work, buyers commonly negotiate for better amenities (upgrade carpet, light fixtures, etc.) or lot location. Experts say a developer will rarely pass up a deal over a couple hundred dollars' worth of carpeting, for example.
Q: Who gets the furnishings when a home is sold?
A: Fixtures, any kind of personal property that is permanently attached to a house (such as drapery rods, built-in bookcases, tacked-down carpeting or a furnace), automatically stay with the house unless specified otherwise in the sales contract. But you can consider anything that is not nailed down negotiable. This most often involves appliances that are not built in (washer, dryer, refrigerator, for example), although some sellers will be interested in negotiating for other items, such as a piano.
Q: What do you think of get-rich-quick real estate schemes?
A: Most real estate experts say there is no such thing as getting rich quick in real estate. But there are no end of get-rich-quick programs presented to the public as alternative methods of buying real estate.
Some are reputable while others depend on your financial circumstances to work. A handful are simply scams.
Many get-rich-on-real-estate programs offer advice on how to buy government foreclosure properties and participate in other government programs. Most of this information can be obtained by calling the government offices involved directly.
Anyone interested in real estate investments would be wise to explore a variety of sources. Most investors view real estate as a long-term investment. Deals that sound too good to be true often are.
Q: What is the best time to buy?
A: Because many buyers prefer to move in the spring or summer, the market starts to heat up as early as February. Families with children are anxious to buy so they can move during summer vacation, before the new school year begins.
The market slows down in late summer before picking up again briefly in the fall. November and December have traditionlly been slow months, although some astute buyers look for bargains during this period.
Q: What are some tips on negotiation?
A: The more you know about a seller's motivation, the stronger a negotiating position you are in. For example, a seller who must move quickly due to a job transfer may be amenable to a lower price with a speedy escrow. Other so-called "motivated sellers" include people going through a divorce or who have already purchased another home.
Remember, that the listing price is what the seller would like to receive but is not necessarily what they will settle for. Before making an offer, check the recent sales prices of comparable homes in the neighborhood to see how the seller's asking price stacks up.
Some experts discourage making deliberate low-ball offers. While such an offer can be presented, it can also sour the sale and discourage the seller from negotiating at all.
Q: What repairs should the seller make?
A: Most sellers like to make all minor repairs before going on the market in order to seek a higher sales price. In addition, nearly all purchase contracts include a buyer contingency "inspection clause," which allows a buyer to back out if numerous defects are found. Once the problems are noted, buyers can attempt to negotiate repairs or a lower price.
Q: What is the difference between list price, sales price and appraised value?
A: The list price is a seller's advertised price, a figure that usually is only a rough estimate of what the seller wants to get. Sellers can price high, low or close to what they hope to get. To judge whether the list price is a fair one, be sure to consult comparable sales prices in the area.
The sales price is the amount of money you as a buyer would pay for a property.
The appraisal value is a certified appraiser's estimate of the worth of a property, and is based on comparable sales, the condition of the property and numerous other factors.
Q: What is the first step to buying a home?
A: Finding out what you can afford is one of the first steps, which can be done by pre-qualifying for a home loan. This step will help you narrow your search for both a neighborhood and particular houses. A pre-qualification is a simple calculation that considers several factors, but primarily your income. There are no guarantees with a lender prequalification notice, but it will be expected of you when you make an offer on a home.
Q: Should I include an inspection contingency in my offer?
A: An "inspection contingency" protects you as a buyer in a purchase offer by allowing you to cancel closing on the deal if an inspector finds problems with the property.
As soon as the seller accepts a written offer, the document becomes a legally binding contract. The purchase contract can be written to include a contingency for any repairs found to be needed or related items the seller must take care of before closing. If these are not dealt with, and you have such a clause in your contract, you can delay or possibly cancel the closing. If it's not stated in the contract, you could face losing your deposit. There also may be costly legal implications stemming from backing out of a contract.
You usually will have the right to choose the inspector (and be responsible for paying for the inspections). In addition to an overall inspection for structural soundness, you can request a satisfactory pest control inspection report, roof inspection report or contingency for no potential environmental hazards such as asbestos or radon gas.
Contingency clauses should satisfy the concerns of both the buyer and seller. Buyers also can protect themselves by inserting additional necessary contingencies. Indicate which items like curtains and appliances are to remain with the house. Then stipulate you have the right to personally inspect the home 24 hours before closing to make sure all is in order.
Home Inspections & Warranties - FAQs
Q: How do I find a home inspector?
A: In order to find a home inspector, Dian Hymer, author of "Buying and Selling a Home A Complete Guide," Chronicle Books, San Francisco; 1994, advises looking for someone with demonstrable qualifications. "Ideally, the general inspector you select should be either an engineer, an architect, or a contractor. When possible, hire an inspector who belongs to one of the home inspection trade organizations."
The American Society of Home Inspectors (ASHI) has developed formal inspection guidelines and a professional code of ethics for its members. Membership to ASHI is not automatic; proven field experience and technical knowledge of structures and their various systems and appliances are a prerequisite.
One can usually find an inspector by looking in the phone book or by inquiring at a real estate office or sometimes at an area REALTOR® association.
Rates for the service vary greatly. Many inspectors charge about $400, but costs go up with the scope of the inspection.
Q: What's a home inspection?
A: A home inspection is when a paid professional inspector -- often a contractor or an engineer -- inspects the home, searching for defects or other problems that might plague the owner later on. They usually represent the buyer and or paid by the buyer. The inspection usually takes place after a purchase contract between buyer and seller has been signed.
Q: Do I need a home inspection?
A: Yes. Buying a home "as is" is a risky proposition. Major repairs on homes can amount to thousands of dollars. Plumbing, electrical and roof problems represent significant and complex systems that are expensive to fix.
Q: How do I find a home inspector?
A: Your realty agent is one source. Inspectors are listed in the yellow pages. You can ask for referrals from friends. Ask for their credentials, such as contractor's license or engineering certificate. Also, check out their references.
What You Can Afford - FAQs
Q: How do you find out the value of a troubled property?
A: Buyers considering a foreclosure property should obtain as much information as possible from the lender about the range of bids being sought.
It also is important to examine the property. If you are unable to get into a foreclosure property, check with surrounding neighbors about the property's condition.
It also is possible to do your own cost comparison through researching comparable properties recorded at local county recorder's and assessor's offices, or through Internet sites specializing in property records.
Q: Why buy a house?
A: Here are some frequently cited reasons for buying a house:
* You need a tax break. The mortgage interest deduction can make home ownership very appealing.
* You are not counting on price appreciation in the short term.
* You can afford the monthly payments.
* You plan to stay in the house long enough for the appreciation to cover your transaction costs. The costs of buying and selling a home include real estate commissions, lender fees and closing costs that can amount to more than 10 percent of the sales price.
* You prefer to be an owner rather than a renter.
* You can handle the maintenance expenses and headaches.
* You are not greatly concerned by dips in home values.
Q: What can I afford?
A: Knowing what you can afford is the first rule of home buying, and that depends on how much income and how much debt you have. In general, lenders don't want borrowers to spend more than 28 percent of their gross income per month on a mortgage payment or more than 36 percent on debts.
It pays to check with several lenders before you start searching for a home. Most will be happy to roughly calculate what you can afford and prequalify you for a loan.
The price you can afford to pay for a home will depend on six factors:
1. gross income
2. the amount of cash you have available for the down payment, closing costs and cash reserves required by the lender
3. your outstanding debts
4. your credit history
5. the type of mortgage you select
6. current interest rates
Another number lenders use to evaluate how much you can afford is the housing expense-to-income ratio. It is determined by calculating your projected monthly housing expense, which consists of the principal and interest payment on your new home loan, property taxes and hazard insurance (or PITI as it is known). If you have to pay monthly homeowners association dues and/or private mortgage insurance, this also will be added to your PITI.
This ratio should fall between 28 to 33 percent, although some lenders will go higher under certain circumstances. Your total debt-to-income ratio should be in the 34 to 38 percent range.
Q: How much will I spend on maintenance expenses?
A: Experts generally agree that you can plan on annually spending 1 percent of the purchase price of your house on repairing gutters, caulking windows, sealing your driveway and the myriad other maintenance chores that come with the privilege of homeownership. Newer homes will cost less to maintain than older homes. It also depends on how well the house has been maintained over the years.
Q: Where do I get information on housing market stats?
A: A real estate agent is a good source for finding out the status of the local housing market. So is your statewide association of REALTORS®, most of which are continuously compiling such statistics from local real estate boards.
For overall housing statistics, U.S. Housing Markets regularly publishes quarterly reports on home building and home buying. Your local builders association probably gets this report. If not, the housing research firm is located in Canton, Mich.; call (800) 755-6269 for information; the firm also maintains an Internet site. Finally, check with the U.S. Bureau of the Census in Washington, D.C.; (301) 495-4700. The census bureau also maintains a site on the Internet. The Chicago Title company also has published a pamphlet, "Who's Buying Homes in America." Write Chicago Title and Trust Family of Title Insurers, 171 North Clark St., Chicago, IL 60601-3294.
Q: What is the standard debt-to-income ratio?
A: A standard ratio used by lenders limits the mortgage payment to 28 percent of the borrower's gross income and the mortgage payment, combined with all other debts, to 36 percent of the total.
The fact that some loan applicants are accustomed to spending 40 percent of their monthly income on rent -- and still promptly make the payment each time -- has prompted some lenders to broaden their acceptable mortgage payment amount when considered as a percentage of the applicant's income.
Other real estate experts tell borrowers facing rejection to compensate for negative factors by saving up a larger down payment. Mortgage loans requiring little or no outside documentation often can be obtained with down payments of 25 percent or more of the purchase price.
Q: How long do bankruptcies and foreclosures stay on a credit report?
A: Bankruptcies and foreclosures can remain on a credit report for seven to 10 years.
Some lenders will consider a borrower earlier if they have reestablished good credit. The circumstances surrounding the bankruptcy can also influence a lender's decision. For example, if you went through a bankruptcy because your employer had financial difficulties, a lender may be more sympathetic. If, however, you went through bankruptcy because you overextended personal credit lines and lived beyond your means, the lender probably will be less inclined to be flexible.
Q: What is Fannie Mae's low-down program?
A: Fannie Mae is expanding the availability of low-down-payment loans in an effort to help more people nationwide qualify for a mortgage.
Two new programs will help potential buyers overcome two of the most common obstacles to home ownership, low savings and a modest income.
To address many first-time buyers' struggles to save the down payment, Fannie Mae developed Fannie 97. The program provides 97 percent financing on a fixed-rate mortgage with either a 25- or 30-year loan term through Fannie Mae's Community Home Buyers Program.
Fannie Mae's new Start-Up Mortgage will assist buyers with a 5 percent down payment who are at any income level. Applicants do not need as much income to qualify and less cash for closing than with traditional mortgages. Borrowers will receive a 30-year, fixed-rate mortgage with a first-year monthly payment that is lower than the standard fixed-rate loan.
Freddie Mac, Fannie Mae's counterpart, also offers low-down-payment loan programs.
New Homes & Vacation Homes - FAQs
Q: Can you negotiate the price on new homes?
A: It can be difficult to negotiate the sales price with a developer because they may claim their prices are based on fixed construction costs. But it doesn't hurt to try.
Experts say builders are more likely to be flexible on price at the very beginning and the very end of a development project. Early on, most developers want to move people in quickly so the project picks up momentum. Later, developers may be more inclined to accept lower offers when only a few units remain.
If negotiating the price doesn't work, buyers commonly negotiate for better amenities (upgrade carpet, light fixtures, etc.) or lot location. Experts say a developer will rarely pass up a deal over a couple hundred dollars' worth of carpeting, for example.
Q: Should I buy a vacation home?
A: Today a vacation home may be purchased for investment purposes as well as enjoyment. And yes, there may be tax benefits, but check with your tax professional.
Some people buy a vacation home with the idea of turning it into a permanent retirement home down the road, which puts them ahead on their payments. Another benefit is that the interest and property taxes are tax deductible, which helps to offset the cost of paying for a second home. A vacation home also can be depreciated if you live in it less than 14 days a year.
Resources:
* "Real Estate Investing From A to Z," William Pivar, Probus Publishing, Chicago; 1993.
* "The Ultimate Language of Real Estate,'' John Reilly, Dearborn Financial Publishing, Chicago; 1993.
Q: What do you think of a vacation home as an investment?
A: You can buy a vacation home today for investment purposes as well as enjoyment. And yes, there may be tax benefits.
Some people buy a vacation home to use as a permanent retirement home later, which allows them to get ahead on their payments. Another benefit is that the interest and property taxes on a vacation home are tax-deductible.
Some real estate experts predict that vacation homes will appreciate in value due to rising demand from the aging Baby Boom generation. You also may be able to depreciate the property if you live in the house less than 14 days a year. Again, check with your tax professional.
You also need to consider whether you can afford to carry two mortgages, pay for the extra utilities and maintenance costs, and how this investment fits into your total personal finance picture.
Q: Do builders give financing?
A: Builders often include financing programs to help move more buyers into a project early on. If it's a buyer's market in your area, you can be sure that developers will offer incentives such as low-down-payment financing.
Q: Where can I get a list of home builders?
A: For a list of home builders, contact the National Association of Home Builders at 201 15th St., N.W., Washington, DC 20005; (202) 822-0200, or your local Building Industry Association office.
Q: Should I hire a home inspector for a new home?
A: Most experts recommend having a home inspected, new or old. For new home, ask the builder to provide copies of any inspection reports on the property, architectural plans, surveys and pertinent construction documents for your inspector to review. Your inspector should either be a professional home inspector, an engineer, an architect or a contractor.
If you hire a professional inspector, look for one who belongs to one of the home inspection trade organizations. The American Society of Home Inspectors (ASHI) has developed formal inspection guidelines and a professional code of ethics for its members. Membership to ASHI is not automatic; proven field experience and technical knowledge about structures and their various systems and appliances are prerequisites.
Rates for the service vary greatly. Many inspectors charge about $400, but costs go up with the scope of the inspection.
Q: What are some new-home cautions?
A: When you buy a resale home, you can find out a lot more about the property and the neighborhood before you buy than when you buy a new home.
Land to support new-home developments usually is located on the outskirts of town. Potential buyers should ask the developer about future access to public transit, entertainment activities, shopping centers, churches and schools. Find out how far it is to the nearest library, for example.
Local zoning ordinances also should be reviewed. A rather remote area can turn into a fast-food-chain haven within a couple of years. Try to ensure that the neighborhood, if not strictly residential, will not begin sprawling out of control.
Q: What about new versus previously owned?
A: Although new homes typically have a higher sales price than comparable existing homes, buyers are willing to spend more upfront with an understanding that part of what they are paying for is assured low maintenance costs. A builder's warranty, along with brand-new roof, appliances, furnace and other operating systems that make major repairs unnecessary, work together to counteract possible slower appreciation initially.
Data from the U.S. Census Bureau's 1991 American Housing Survey suggest that operating costs per house are lowest for brand-new homes, slightly higher for relatively new existing homes but lower on average for older existing homes. Measured per square foot of living space, however, operating costs are consistently higher for progressively older existing homes.
Utility costs are the largest component of operating costs. Energy consumption per square foot depends on size of the home, insulation, window quality, air leakage and efficiency of the furnace. Operating costs also include expenditures for both routine maintenance and major repairs.
Q: What are considerations to buying a new home?
A: Builders may have a target market in mind for their new-home projects. Some may tout communities as glamorous to upscale urban professionals seeking amenities such as a golf course, hot tubs and tennis courts. Yet a playground and swimming pool might be central to a project geared toward families while the next one offers seniors a walking trail and an easy-to-care-for yard.
Do not be tempted to move into a "glamorous" community where you might be able to afford the house but not the lifestyle. In addition, similar-looking new houses often come complete with restrictions imposed by the developer on house color, landscaping, renovations and anything else a homeowner possibly could do to make their house deviate from the preferred look.
Marketing experts try to appeal to buyer's tastes by their promoting images for their developments. Don't buy into it. Form your own opinions and only buy a home where you feel comfortable. After all, you're going to have to live there.
Q: What is the return on new versus previously owned homes?
A: Buying into a new-home community may seem riskier than purchasing a house in an established neighborhood, but any increase in home value depends upon the same factors: quality of the neighborhood, growth in the local housing market and the state of the overall economy.
One survey by the NATIONAL ASSOCIATION OF REALTORS® shows that resale homes do have an edge over new homes. The trade group's figures show the median price of resale homes increased 3 percent between 1994 and 1995, compared to 0.8 percent for new homes in the same period.
Interest Rates - FAQs
Q: Tell me more about ARMs?
A: Adjustable-rate mortgages "are tied to an index which is a measure of the lender's cost of borrowing money. As the index rises, so will the interest rate on the adjustable loan," according to Dian Hymer, author of "Buying and Selling a Home, A Complete Guide," Chronicle Books, San Francisco; 1994. v Common indexes include Treasury Securities (T- Bills), Certificates of Deposit (CDs), and Libor (London inter- bank offering rate). Most metropolitan newspapers publish current ARM index rates.
The interest rate and payment adjustments may or may not be scheduled to change at the same time. For example, the interest rate on some plans changes more frequently than the monthly payment, which may result in negative amortization. "This means that the additional interest will be added to the principal balance of the loan and may accrue additional interest itself," Hymer says. If the monthly payments on an ARM are increasing, generally this is because the index is rising or it is a negative amortization ARM.
People with adjustable-rate mortgages wanting to know how their payments are calculated might contact their lender or review the language in their loan agreement. |
