Buying Tips

  • How to Buy
    • Appraisals & Market Value

      A seller's advertised or list price should be treated as only a rough estimate of what he or she would like to receive. Some deliberately overprice, while others ask for close to what they hope to get and a few actually underprice their houses with hopes that potential buyers will compete and overbid.

      The appraisal price is another estimate of value. The appraised price is how much money a professional appraiser estimates the home to be worth and usually is based on sales of comparable homes in the same area.

      Purchase price and sales price are the same thing. Both terms mean the amount of money the successful buyer actually pays out to purchase the home.

    • Closing Costs

      Studies show that coming up with the down payment and closing costs, which can average 2 to 3 percent of the total purchase price, are the largest obstacles to home ownership. Closing costs vary from one transaction to another and will certainly be less if one is buying a property without a mortgage and its paying with cash out of their own pocket. But most people don't have that option. Here are some other ways to save:

      • Some home sellers who are anxious to sell will pay all or part of the closing costs, but these special circumstances must be disclosed and acceptable to the lender who makes the first mortgage on the property. Concessions will typically be agreed upon during the offer-counteroffer-acceptance cycle, though sometimes a seller will agree to make payment of closing costs during the escrow process.
      • In addition, no-point loans can reduce closing costs. The trade-off is a higher interest rate on the loan and many of these loans have prepayment penalties. But buyers who are short on cash and can qualify for a higher interest rate may find a no-point loan will significantly cut their closing costs.
      • Some lenders also advertise loans without any fees, such as appraisal and escrow charges. But these fees are also wrapped into a higher rate> *Generally, seller financing comes without the traditional loan fees and charges.
      • A lease with an option to purchase is another tool sellers can use to induce a sale, where the buyer lacks sufficient funds for down payment and closing costs.

      The best option for reducing closing costs is to shop around. Each lender and each mortgage brokerage has their own fee structure. So call around before submitting your final loan application.

    • Finding the Right Home

      Experts would say buy a home if you meet the following criteria:

      • Need a lucrative tax break. The mortgage interest deduction can make home ownership very appealing.
      • Are not counting on price appreciation in the short term.
      • Can afford the monthly payments.
      • Plan to stay in the house long enough for the appreciation to cover your transaction costs. The costs of buying and selling a home inchtde real estate commissions, lenderfees and closing costs that can amount to more than 10 percent of the sales price.
      • Prefer to be an owner rather than a renter.
      • Can handle the maintenance expenses and headaches.
      • Are not greatly concerned by dips in home values.
    • Home Inspections and Warranties

      Many developers provide buyers with a one-year home warranty. This may be something you want to negotiate for if it is not offered. The standard warranty offers a buyer of a new home a 10-year warranty against certain physical defects, such as faulty roofing, heating, electrical services and plumbing. A one-time insurance premium averages about $2 per $1,000 of the home's selling price. The cost may be paid by the broker, seller or buyer, or it may be shared.

    • Insurance

      According to the Insurance Information Institute, A Washington, D.C.-based nonprofit group for the property-casualty insurance industry, a standard homeowners policy protects against fire, lightning, windstorms, 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. The institute's Sean Mooney says that the basic insurance policy in an "all-risk policy", which covers practically everything with the exception of earthquakes, floods, war and nuclear accidents.

      This standard homeowners policy can be expanded to include additional coverage, such as for floods and earthquakes and even workers compensation for servants or contractors. There is a growing interest in home business-coverage, but Mooney warns that the basic homeowner policy doesnít cover liability associated with the business. Insurance experts recommend that homeowners obtain insurance equal to the full replacement value of the home. For example, on a 2,000-square-foot home, if the cost to replace the home is $80 per square foot, then 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. For example, if a 10-year old rug suffers water damage a homeowner can go out and get a new rug instead of only receiving the depreciated value of the old rug. Bob Vila in his book, quot;Guide to buying Your Dream Housequot;, Little, Brown amp; Co. Boston, Recommends that homeowners have and inflation rider to boost coverage as the home increases in value. Moreover, "it's up to you to see that your insurance coverage remains adequate," he writes.

    • Making an Offer

      In some states, you do need an attorney to complete a real estate transaction, but in others you do not.

      The vast majority of people buying a home do not use the services of a real estate attorney but all do in states such as Florida, for example. Even real estate lawyers admit that attorneys usually are unnecessary. Most home buyers are capable of handling routine real estate purchase contracts as long as precautions are taken. They should definitely make sure they understand every single term of the contract. Every contract is different, even though they're on preprinted forms. Buyers should closely study the contingency clauses allowing them to back out if they cannot obtain financing or an inspection turns up problems.

      Hiring an attorney after a conflict erupts may be too late. Lawsuits are costly and time-consuming. People who anticipate a problem should stay out of the transaction altogether. Not all real estate attorneys are competent, let alone good. And it's important to find one who will help, rather than hinder, the deal.

      Buyers who need an attorney should call several and inquire about fees, but be willing to pay for someone with experience. Do not hire Uncle Harry, the tax attorney to handle a transaction that may be the biggest investment of your life. On a $100,000 home, the attorney's fee is minuscule, and on a bad deal, that fee could save you a tremendous amount of heartache as well as money to fix whatever problems crop up.

    • Property Taxes

      Taxpayers first should try to win property tax reductions through informal protests to assessors.

      Most formal tax appeal processes begin with an appeal, which ordinarily must be filed with the appropriate assessment appeals board.

    • Tax Considerations

      Homeowners benefit from several generous tax advantages. The most important benefit is the mortgage interest deduction. People may deduct interest paid on mortgage loans totaling up to $1 million used to buy, build or improve a principal residence plus a second home. The IRS calls such loans acquisition debt. Points paid by the buyer or seller on a new mortgage loan for the purchase or improvement of a principal residence are deductible for the year in which the home was purchased.

      Any points paid on a refinance mortgage, a loan to purchase a second home or a mortgage on income property must be spread over the life of the loan.

      Note that when obtaining a new mortgage, the borrower usually is asked to pay interest from the closing date until the first of the next month. Check whether that charge is included in the year-end report. Property taxes on all real estate, including those levied by state and local governments and school districts, are fully deductible against current income. A homeowner cannot deduct maintenance expenses, nor can he take depreciation deductions on his personal residence.

      Some moving expenses are deductible for people who changed jobs and relocated as a result. The IRS requires that the new employment be located at least 50 miles away, among other considerations.

  • What & Where To Buy
    • Fixer-Uppers

      Never hire a contractor without first taking the following steps, according to the League of homeowners:

      1. If your state has a licensing board for contractors, call them. And ask the board if there are any outstanding complaints against that license holder.
      2. Contact your local Better Business Bureau to see if there are any complaints on file.
      3. When interviewing, ask prospects about their worker's compensation insurance.
      4. Get the policy number and phone number of the insurance carrier. Call to be sure the contractor is covered. if he or she is not, any work-related injury on your property could become a liability to you.
      5. Check to see that the contractor has an umbrella general liability policy.
      6. Always ask for references.
      7. Always take the time to call and verify them.
      8. Do not give in to pressure to make a decision. Believe it or not, there are more contractors than there is work to be done. If a contractor insists that you make a quick decision, move on to someone else.
      9. Never pay a deposit to a contractor. If you are asked to pay a deposit fee at the first meeting, simply end the meeting.
    • Newly Constructed Homes

      Buying a resale home allows a complete examination of the interior spaces and the surrounding yard in great detail. You know exactly where this house fits into the overall neighborhood and what to expect in years to come. In addition, existing neighborhoods are located on existing streets, which lead to existing shops and schools.

      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.