Whether we’re first-time buyers or more seasoned at it, home buying presents many factors to consider. These involve selecting the home, being able to afford it and all of the duties imposed upon us by governments, homeowners associations and the banks. Below, we have some tips and things to examine in the buying decisions and process.
1. The Right Size
Consider how much house is wanted — or really needed. Some of us reaching advanced ages might lack the desire or physical endurance and strength to maintain large lawns or clean numerous rooms. Housing communities that offer lawn services may alleviate the responsibility, but with that convenience may come a cost. In condominium or townhome communities, property managers maintain common areas and eliminate the need for the owner to mow.
The size of the home drives the spending needed for items such as:
- Furniture, curtains and other decorations
- Heating, air conditioning and other utilities
- New flooring or carpeting
- Roof replacements
2. Single or Multiple Stories
As we get older, it becomes more physically taxing to climb stairs. Single-level homes may prove easier to navigate than those with multiple stories or basements, especially for senior citizens or those with physical or mobility challenges. Single-story homes typically prove easier to evacuate during fires or to find cover in case of tornadoes. When a funnel cloud approaches, being on an upper level can expose homeowners to flying debris and other dangers.
Financial considerations may also affect whether to go with one or two stories. One-story structures have generally simpler designs, which may translate to lower prices. However, the single-story approach may complicate additions. With expansions of especially one-story homes come the need for more land and materials for walls, ceilings, roofs, electrical and plumbing systems. Multi-level homes already feature more rooms and take up less land.
3. The Right Place
Location drives property values. Highly sought-after neighborhoods have homes that can command higher prices in the years after purchase.
Well-performing or regarded schools rank at or near the top of factors for families. Even for those without school-age children, the quality of schools in the neighborhood is important. Being in a great school district makes a wonderful selling point when it’s time to sell. Sites such as niche.com and greatschools.org bill themselves as resources for school rankings and evaluations.
When choosing a location, we also should consider:
Availability of public transportation. This might come in handy as older people may wish or be able to drive less. Those who may eschew cars because of personal finances or environmental concerns may choose to live where subways and local or regional bus systems are available.
Access to retail establishments, medical services and offices. Even for those of us who drive ourselves, urban areas make those trips to restaurants, the doctor’s offices, other professionals or grocery stores less imposing. Rural locals normally mean longer drives to get essentials or conduct important personal and business affairs.
Crime. Crime doesn’t only affect values, but also the need to spend on security measures and premiums for insurance.
Flood, earthquake or hurricane zones. Find out if the home is located in a FEMA flood zone or in a place where earthquakes and hurricanes are very possible. Standard homeowners policies do not cover flooding, earthquakes or other types of specialty risks. Flood insurance or endorsements that cover earthquakes and the like may fill the gap, but at additional cost. You should also keep in mind whether being in a coastal area will result in higher insurance premiums.
4. Finding an Affordable Home
Price plays a very important role in the ability to afford a home. Most of us do not have six figures of cash handy to pay in full for a home. As a result, we must resort to mortgages.
The ability to afford a particular home typically depends upon the monthly payments for the loan obtained to buy it.
One measure of affordability rests in the “28/36 rule,” which enders or personal finance experts often invoke in loan decisions or advice. That is, the monthly expenses for maintaining a home should not go north of 28 percent of monthly gross income. Much of this includes the mortgage payment, but also takes into account taxes, insurance, maintenance and expenses for electricity, water, sewer and trash collection. Total debt payments, which include the mortgage payment and other debts such as student loans, vehicle loans and credit cards, should not exceed 36 percent of pre-tax income.
5. Purchase with a Reverse Mortgage
We typically think of mortgages in terms of loans we must begin repaying immediately. Those exist and will discuss those shortly.
For home buyers age 62 or over, there exists the option of a reverse mortgage. Unlike lenders in the typical loan arrangement, reverse mortgage lenders actually pay the borrowers at the beginning or throughout the life of the loan. One type of reverse mortgage, the home equity conversion mortgage for purchase, calls for the lender to advance to the purchaser the equity (or the purchase price).
As with other reverse mortgages, the homeowner does not have to repay the loan until the happening of an event, such as the owner dies or sells a home. These federally backed home equity conversion mortgages require the owner to use it as the principal residence. Reverse mortgages are not necessarily free money, as the owner must pay property taxes, insurance premiums and may have higher closing costs than with a regular mortgage.
6. Longer Loans for Lower Monthly Payments
For the more traditional approach to borrowing, consider how long the loan will last. Normally, mortgages for home buyers come in 30-year or 15-year versions. A 30-year loan will result in lower payments, but ultimately more interest is paid over the 30 years than in a 15-year period.
Age does not serve as a prerequisite for or as a disqualifying factor in loans. Those who choose longer loans even in the late years of life can still achieve the lower payments of a longer loan. However, at the owner’s death, the property will pass to errors with the burden of an outstanding loan balance. At death, these properties become targets for foreclosures as the errors have neither the resources nor the desire to redeem the property or keep making the payments.
7. The Down Payment
The amount of money you front for home purchase affects the amount you have to borrow and, as the result, the monthly mortgage payment.
Once upon a time, borrowers had to put down 20% of the purchase price to qualify for a loan. Buyers with existing homes can readily parlay the equity into a sizeable down payment for the new home. The advent of purchase mortgage interest insurance and down payment assistance has removed the obstacle of large down payments for many who cannot pull that money together.
For conventional mortgages, a borrower can put down as little as three percent as a down payment. However, with the lower down payment comes the requirement to maintain private mortgage insurance (PMI). This coverage protect s the lender against losses in the event a borrower defaults by feeling to make payments. PMI stays on the loan until the amount owed drops to 80 percent of the home’s value.
With Federal Housing Administration (FHA) loans, the required down payment is low as three and a half percent. Some Veterans Administration loans come without any requirement for a down payment.
8. To Be Fixed or Variable
Catching interest rates at low points makes variable mortgages attractive. However, a variable interest rate loan comes with considerable unpredictability and puts challenges on budgeting and other financial planning. Many senior citizens rely upon social security, pension and other sources of fixed income, making variable rate loans quite risky.
9. The Right Agent
A qualified and loyal agent can smooth to some extent the buying process. Choosing an agent should take into account the type of houses and location, such as a realtor with experience with condominiums or townhomes. Certainly, it helps to find an agent with strong familiarity with the area of purchase. From such a relationship comes a wealth of information about the quality of schools, amenities in the community and the presence or absence relatively speaking of criminal activity.
Many real estate agents represent both buyers and sellers. These dual agency arrangements open the possibility of conflicts of interest. Other real estate firms may list houses then steer their clients towards those houses. A truly independent buyers agent represents solely the buyer and does not post its own listings.
10. Take Tours at Open Houses
With practically anything we purchase, we want to see it first. The open house affords one way for prospective buyers to examine closely their potential home or investment.
In an open house, we get the chance to walk the floors, look at the walls and other aspects of the home. Agents readily hold these events to drum up interest and excitement for particular property. To that end, the furniture and some of the other items in the home serve as mere props and might not go with the home at closing time.
An open house also allows buyers to scout others who might have some interest in the property. The facial expressions or comments by others may afford clues as to the competition when offers are made or might signal a consensus that the house is not an attractive deal.
11. Get a Home Inspection
An open house normally does not afford participants an up close or stringent examination of the property. For closer looks, we turn to home inspectors. These are professionals who test the various lights, faucets, toilets and other aspects of the home to make sure they work. The eyes of an inspector may find leaks, water stains, buckles in the floor, holes and walls or floors and perhaps some trouble spots with the roofing or other structures.
The inspector has the role of advising the would-be buyer on cosmetic and functionality issues. Bear in mind that a home inspector differs from a code inspector. The latter works for a local government and ensures that the home complies with the applicable building regulations. Building inspectors examine newly constructed homes to ensure compliance with the minimum codes for the foundation, structure, electrical, plumbing, heating and air conditioning and fire prevention.
12. Negotiate for an Escrow Agreement
Having an escrow agreement helps buyers who really love the location and other features of a home, but have hang ups about certain defects. With an escrow agreement, a certain portion of the purchase price gets set aside until certain problems are remedied. For example, the house might need minor touch-ups, replacements of small items or a certain repair.
In these cases, it may be advisable to proceed with closing and take possession of the property. With the escrow agreement, the purchase price does not get fully released to the seller until the problems are fixed. If the problems go unsolved, the money is returned to the buyer. In the absence of a proper escrow agreement, acceptance of a deed at closing means you accept the property in whatever condition it may exist.
13. Knowing Restrictions and Limits to Title
Buyers may focus so much on the price, location and condition of the property that they might ignore limits on their rights in the property and the use of it.
For new and experienced buyers, the services of an attorney can prove very valuable in catching potential pitfalls to the title of property. In fact, banks or mortgage companies will often require a title search to ensure that the buyer is getting good title and that the mortgage company stands first in line should a foreclosure be necessitated. Potential defects to clear title may come from:
- Existing mortgages
- Unpaid taxes
- Liens from contractors, material providers and others furnishing improvements to the property
- Violations of environmental, zoning or building regulations
- Leases of record
- Liens by local governments for the cost of correcting conditions such as unmowed or unkept yards, unsanitary conditions or unsafe properties
- Prior conveyances of the property
- Homeowner or condominium association dues or violations
- Easement and rights of way
For those who purchase condominiums, townhomes or homes in subdivisions, the attorney will probably bring to light attention restrictive covenants. These can control things such as the color of the exterior of the home, whether any accessory structures are permitted, the size of flags or satellite dishes and how often the owners must mow.
14. Watch for Amenities
The marketing of condominiums, townhomes and other planned developments features amenities such as swimming pools, tennis courts and other common areas.
Unsuspecting buyers may plunge into these properties only to learn that the amenities are not being provided, and that the developer has no obligation to do so. This may happen if the developer records with the declaration of amenities for the map of the development that amenities may or may not be constructed or provided.