| 
| August 2008 | Volume 18 No. 8 |
| Common red flags for home buyers By Dian Hymer  Besides physical defects, don't overlook financing and agent professionalism
Last year, before the subprime crisis hit, a home buyer was on the verge of purchasing his first home. His mortgage broker told him that qualifying for a mortgage would not be a problem.
After reviewing the numbers of an attractive teaser-rate adjustable, the buyer had second thoughts. He called a knowledgeable friend and asked her to review the loan documents with him. After fully understanding how much the loan would ultimately cost, he decided not to go through with the sale.
In the residential real estate business, a red flag refers to a condition affecting a property that might be a material fact that needs further investigation. A material fact is something that would affect the buyers' decision to buy or the price they would be willing to pay. For example, a hole in the roof is a red flag that the roof might need replacing.
Although red flag is a concept commonly associated with the physical aspects of a property, it's a valuable notion for home buyers to keep in mind throughout all aspects for their home search and purchase. If more buyers had raised questions about the mortgages they took out during the past several years when lending practices were lax, there would be fewer foreclosures today.
HOUSE HUNTING TIP: Home buying is an exciting experience. It can also be stressful. To ensure a satisfying home-buying experience, resolve to stay actively involved in the process. Commit to being hypervigilant. Watch out for red flags and investigate anything questionable.
Working with an excellent real estate agent will increase your confidence level. However, your agent acts on your behalf and should not make decisions for you. Always remember that you are in the driver's seat. This applies to sellers as well.
Make sure that you work with quality professionals in your area. If your real estate agent or mortgage person doesn't return your calls promptly, this could be a red flag this relationship won't work well for you. Likewise, if your agent keeps showing you properties that don't match your criteria, you could be in for a frustrating and time-consuming experience.
If you get conflicting information about a property, this could also be a red flag. It might indicate carelessness. Or, it could mean that someone is concealing a material fact. Follow through and find out answers to all your questions. There are no stupid questions when it comes to buying and selling real estate.
It's a red flag if an inspector you hire to inspect the house you're buying tells you that he already inspected the property for the seller, but you were never given a copy of the report.
Don't make any assumptions without following through to verify that they are accurate. For instance, if there's a downstairs living area with a second kitchen, don't assume you can rent it to a tenant even if the seller has in the past.
If the property is located in a neighborhood zoned for single-family residences only, renting the downstairs might be a zoning violation. If you're counting on income from the lower living area, you could find yourself in a house you can't afford if the zoning regulations are enforced.
Don't overlook upcoming changes in the neighborhood. For example, the seller should, but might not, tell you that a school is going to be built across the street. If you're sensitive to noise, this could become a problem for you. Vacant land close to the property is a red flag.
THE CLOSING: Find out what will be built there before making a final decision.
Copyright © 2008 Inman News - Dian Hymer Back to the top | | Is buying a home to live in a good investment? By Dian Hymer  Despite benefits, price appreciation not guaranteed in today's market
Anecdotal evidence suggests that in some markets investors are buying foreclosure properties at bargain prices. These properties are located in areas that appear to have good growth potential, and they generate enough rental income to at least offset the holding and maintenance costs. The deal needs to make sense financially regardless of whether there is a big run up in appreciation. The plan is to hold the property for the long term.
There was a time not long ago when investors bought condos and houses even if they didn't produce enough cash flow to cover the carrying costs. Prices were rising so quickly, they could afford a little negative cash flow. The holding period was short and the appreciation payoff was big. According to Standard & Poor's/Case-Shiller 20-city home-price index, prices increased almost 75 percent between February 2000 and February 2008.
In most housing markets, it's not possible to count on appreciation now. The market could be bottoming out in some places, according to some economists. Or prices could move lower before leveling off. It could be years before significant appreciation is again part of the housing picture. With this in mind, is buying a home to live in still a good investment?
Just as the lenders are moving back to basics in terms of qualifying borrowers for mortgages, home buyers should examine the fundamentals of home ownership to determine if they are good candidates.
HOUSE HUNTING TIP: The equity in your personal residence shouldn't be used to pay for vacations, education, new cars and credit-card debt. Many homeowners who participated in serial refinancing when rates were low and money was easy found they had no equity left when the credit crunch hit in August 2007. A good portion of these repeat refinancers now owe more than the current value of their home.
Along the same lines, it's risky to look at your home as a retirement account. It's not a good idea to rob your pension plans in order to purchase a home. This money should be kept for retirement. Some financial advisors suggest that you don't consider the equity in your home as part of your financial portfolio. After all, you will always need to live somewhere. Most people will always need to budget part of their net worth for housing.
Buying a residence hoping for appreciation to increase your net worth is dicey. You may earn appreciation. Nationally, home prices have tended to rise over the long term. But, this doesn't mean that your home will appreciate during the time period you own it.
However, there are plenty of good reasons to buy your own home, if you can afford it. The government subsidizes the cost of home ownership by permitting taxpayers who itemize deductions to write off some or all of the mortgage interest and property taxes they pay. Restrictions do apply. So, check with your tax advisor before making a purchase.
Owning your own home gives you a sense of security. You can choose the community in which you live. You're not at the mercy of a landlord who might issue an eviction notice. If you buy with a fixed-rate mortgage, you know how much you'll be paying over time. Rents, in most places, are subject to increases. It doesn't make sense to spend money fixing up someone else's house so that it feels like yours. And, most landlords will have a say in what you can and can't do -- even down to paint colors.
THE CLOSING: But, if you own it, you can redecorate to your taste and possibly add value by doing so.
Copyright © 2008 Inman News - Dian Hymer Back to the top | |  Equal Housing Opportunity
|
© 2007, 2008 eProspecting (a division of Dominion Enterprises). All Rights Reserved. |
|