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Old 04-26-2009
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Default Buying A Home 11 Tips To


Buying A Home 11 Tips To

According to estimates by the US Census Bureau, in 2004, the home ownership rate reached an all-time high of nearly 68%. While a home provides the basics of security and comfort, it's much more than that. With the average American home priced at $181,800 US as of the year 2000, a home is an asset for its owner.

With so much riding on your home, you'll want to save money wherever you can, because where you save money, you make money. Here are some tips on how to buy a house for less.

1- Understand the national market

For most Americans, the price of their house determines their financial situation. In a boom period, homeowners are rich with equity; but during lean years, it can be a real struggle.

As a buyer, you'll want to consider whether we're in a boom or bust period. If we're in a boom period, as we are in 2004, the danger is that you will pay too much for the house. Even if you plan to stay in the house for a long time, this can be a problem, since a burst bubble could mean that you're paying off a $300,000 mortgage on property that's now worth half that amount.

By contrast, you may be buying during lean times. While money is typically harder to come by in those times, a buyer can make a huge profit because he'll be buying well below value. The solution is to know the state of the national housing market and plan accordingly. That may mean buying a less expensive house, but it can make the difference between keeping that house and losing it.

2- Understand the local market

Find competitive sale prices for the same type of house in the area you want to live in. No two houses are exactly alike (unless you're looking at a planned community), but knowing the prices of comparable houses will always help you determine if you're paying a fair price.

You can find comparable prices for houses by using a real estate agent. Or, you can do your own research, either by talking to people in the area and attending open houses, or using an online search engine such as HomeGain.com. These search engines are often free at first, which means that the website is trying to sell you on paying for information or using one of its real estate agents. However, with some effort, you can use these services to find comparables in your neighborhood.

3- Use a mortgage broker

The real cost of a house is seldom in the price tag. The better your mortgage, the more you'll save. There are a multitude of lenders to choose from, but the only deciding factor will be the rate. Don't assume that all quotes are the same. You can find the mortgage yourself using websites like LendingTree.com.

But just because you've eliminated the broker, doesn't mean that you've saved money. In fact, you may have lost money. A broker can and often will help you find the best rate. Some brokers charge a fee, but there is no reason to use those brokers because competition is fierce. A good broker will be paid indirectly out of the loan, or receive a commission from the lender. The incentive for them to find you the best loan is that there are a lot of brokers to choose from.

The best game plan is to shop for brokers and get as many quotes as you can. From there, tell a broker with a low quote about your lowest quote and see if he can do better.

4- Investigate different types of mortgages

Mortgages come in different shapes and sizes. The industry works on two basic models, offering loans for either a 30- or 15-year duration, with either fixed or variable rates. Those loans work best for most people. However, some models work better for guys who have irregular income.

For example: if you can be certain that you will come into money in a set period of time (e.g. if you are the beneficiary of a trust), a balloon payment may save you money. A balloon payment allows you to pay all or a great deal of a mortgage off at a given time down the road in a lump sum; in exchange, you get lower monthly payments and, because balloon mortgages pay out before standard mortgages, you'll save on interest payments. People also look for balloon mortgages when they're looking to resell a house quickly for profit.

The advantage in that is that you hold the house for a brief period of time (usually while the market gets or stays hot and you renovate) while making minimal mortgage payments. The buyer "flips" the house before the balloon payment is due. Of course, that kind of deal can be very risky.

5- Buy a house that needs repairs

A house is both a place to live and an investment. As with any investment, you want to buy low and sell high. One of the best ways to buy low is by finding a fixer-upper. Houses come in all conditions, but it's fair to say that a house in poor condition will always sell for less. If you can find such a house and are willing to make repairs, you may find yourself sitting on a goldmine.

After all, as your house increases in value, your equity will grow, allowing you to realize a profit upon sale, or to take money out while you live there, if need be. For this to work, you need to have a good eye for improvements and the ability to negotiate a lower price.

6- Deal directly with the seller

A home sold privately will always be cheaper because you're not paying real estate agents a commission. Those commissions are usually 5% or less of the total sale price, so we're talking about serious money. For their percentage, a real estate agent provides a variety of services. When it comes to locating the right house and making an offer, you'll find that, with a little bit of homework, you can replace your real estate agent.

However, when it comes to the actual sale, you and the seller may want to involve an agent or attorney to make sure that all the paper work is in order (note that some states require the use of an attorney for all real estate transactions). Still, if you're just using the agent or attorney to cement the deal, you and the seller can save money by using the same attorney or agent. In other words, you'll save because you won't be paying for redundant services.

7- Find out about taxes

If you already own a home, you know about property taxes. But if you're buying for the first time, you cannot forget about adding the cost of yearly property taxes to your expenses. To find out how your property taxes are calculated, visit your state's tax board website.

Remember; taxes vary based on sale price, assessed value and duration of ownership, so simply asking the seller what he pays won't give you an accurate idea of your prospective tax liability.

8- Find out about secondary costs

The cost of a house is never just the asking price. Here are some examples:

Monthly fees
In addition to mortgage payments, upkeep and maintenance will amount to significant expenses. If you plan on buying a condominium or an apartment, you'll want to know what the monthly fees are. What's more important is finding out how often and under what circumstances the board raised the monthly fees, and whether or not there is a cap on them. This information will be in the CC&R (Covenants, Conditions & Restrictions) if you're buying a condo, or in similar paperwork for other properties, however, it's a good idea to rely on the paper and ask questions, since the paper can only tell you what a board may or may not do; other residents will tell you how the board really works.

Maintenance fees in a condo or apartment will always vary based on the location and the services offered in the building, with several hundred dollars per month being the likely minimum and up to $1,000 or more per month in more exclusive buildings.

Even if you're not buying a condo or apartment, secondary costs may still be a factor. Some houses fall under the jurisdiction of a homeowner's association that may require you to keep up a certain appearance (which could mean having well-manicured lawns or repainting every other year).

But even if you don't have to comply with a homeowner's association, you will still have to make major necessary repairs.

Repairs
You should always ask when the previous owner last had the roof replaced and when the plumbing was installed.

These aren't items that require disclosure unless there's something wrong with them, but they can be quite costly down the road, in which case you'll want to negotiate a lower price for a house that has an older roof, even if it's in perfect condition because you'll have to replace that roof sooner than later.

Notary
Many states require the use of a notary public in order to execute a land sale contract. You can shop around, but the price won't vary much, although going to the notary is usually cheaper than having one come to you. The average costs runs between $75 and $125.

Escrow fees
Some states require the use of an escrow company. Essentially, the escrow company holds the buyer's funds until the deal is complete. For their services, the escrow company usually takes a fraction of a percent. Naturally, the dollar costs rise on larger purchases.

Title insurance
Whether your lender requires it or not, title insurance is a very good idea. Without title insurance, you leave yourself open to becoming the victim of fraud or negligence. Title insurance guarantees that you get your money back in the event that the seller did not have legal title to the property at the time of transfer. Typically, the insurance is about .5% of the purchase price of the house. Skipping on title insurance is not the place to save money.

9- Don't overpay for amenities

It's hard to point out which features sell a house. Some people like hardwood floors, others prefer fireplaces. While creature comforts are nice, you shouldn't let them be the deciding factor on the home you buy. In fact, it's best to think of those kinds of amenities as window dressing at a retail store; while they may make the house look more appealing, it's not clear that they really add value because they're always a matter of taste.

If you find yourself looking at a home with an amenity that doesn't please you, tell the seller. He may be able to find someone who will pay a premium for marble counter tops, but then again he may not. The key is not to assume that every nice thing about the house is a selling point. Tastes vary and you shouldn't pay extra for a feature you'll end up replacing.

10- Hire a professional to inspect the house

You should never buy a house without an inspection. In fact, most lenders will insist upon it. An inspection is always a good thing because you'll discover things that aren't apparent to the naked eye. An inspection will also give you an inclination of how honest the seller is. While the law requires that they disclose all material defects, many a buyer has found himself in court after a sale, trying to get some or all of his money back. An inspection can tell you if the seller is hiding something that could cost you down the road, like termites or a cracked foundation.

Based on the inspection, ask for a discount from the sale price, or have the owner pay for the repairs.

An inspection can also reveal honest omissions in the condition of the house. And with a copy of the inspector's report, your case for reducing the price or making the seller pay for the repairs becomes much stronger. If the repairs are minor, you'll probably want the owner to make them (and remember that you can make the sale conditional on your approval of the repairs). But if the repairs are more significant, you'll probably want to get them done yourself and get a better price.

After all, you may be able to knock several thousand dollars off the sale price due to repairs that need to be made, which means that you'll save money every month on your mortgage and every year on your taxes.

11- Negotiate the selling price

Buying a house is nothing like buying retail; everything is negotiable. Make an offer on the low side, but always make it a reasonable offer. An unreasonable offer will be insulting and leave you nowhere. You'll know what kind of offer to make once you know your comparables and measure them against the asking price (being sure to discount any necessary repairs or deficiencies in the property).

buy your house for cheap

Owning a home is always a positive step, even if it seems like a headache. The key is to move with prudence and knowledge. If you enter the market with an understanding of the game and what you can afford, you'll do well. But if you let your eyes dictate your expenditures, you'll run the risk of ruin.
By Michael Estrin
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