Chapter 6 - Things To Look For In A Home

In addition to location, you should be looking for a home that obviously will suit your lifestyle. If you have kids, you are better off with a yard or some place for the kids to play. If you are by yourself, you can consider condominiums or town homes. You can generally get a condominium or town home in an area much cheaper than a single family home. This means that if you are considering buying a home for just you, or just you and a significant other, you might be better off with a town home in an area that is one step above the area where you can afford a single family home.

Of course you are going to have to like the layout of the house as well as the exterior look. When you are purchasing a home, however, you should also be looking at resale value. Although you may think it’s great to buy a one bedroom house, this may be tough to sell when the time comes that you have outgrown the house and decided to move on.

Look for things that add to the value of the home for resale value. These include:

Three or more bedrooms. A three bedroom house will sell much better than a two bedroom house. A four bedroom house sells even better. The more bedrooms, the better the chance of reselling the house. If you have a choice between a two bedroom house with a large living room, dining room and kitchen and a three bedroom house with no dining room, pick the three bedroom house. You can eat in the kitchen,.

Two or more bathrooms. The more bathrooms, the greater the value of the house. Two bathrooms is great. One a ¾ bathrooms is okay, too. A three quarter bathroom is one where there is a sink, toilet and shower stall. A full bathroom has a shower and tub as well as sink and toilet. A half bath is one where there is just a sink and a toilet - this is usually called a ‘powder room.”

A basement. If you live in an area where there are basements in the home, you are better off to buy a home with a basement than one without. This does not mean a finished basement. Square footage is based upon living space above ground. It does not usually entail a finished basement, although for resale value, a finished basement does help sell the house. But if you have a choice between a crawlspace and a basement, choose a home with a basement.

A garage. In most upscale neighborhoods, they have a two or three car attached garage. An attached garage is one where you can go from your home to your car without going outside. A detached garage is one where you have to go outside to get to the car, even if the garage is technically attached to the house. Years ago, people had one car and they parked it in the driveway. There weren’t a lot of garages built. Then people started building detached garages. Some of these only hold one car. Some hold two cars. Take a look at the garage in the house you are purchasing. Even if you only have one car, you are better off to buy a house with a two car, attached garage, than one that has no garage or a detached garage.

Central Air. If the house has gas forced air, central air conditioning is not a big deal, but it is a plus if you live in an area where it gets considerably hot in the summer and a must. A house with central air will sell better than one without, so if you have a choice, pick one with central air, even if you hate having the air conditioning on because it bothers your sinuses. Again, think of resale value.

Upgrades. This includes things like a new roof, a new furnace, new windows, maintenance free exterior, updated plumbing, updated electric wiring, updated kitchen and bathroom. These upgrades all add to the value of the home and to resale value.

Ground. The house should have a decent size yard, or at least be comparable to the other homes in the neighborhood.

Things that should not concern you are the following:

The color of the walls. They can be painted. They can be papered. You can do cosmetic treatments to the house once you are in.

The carpet. This is a cosmetic matter just like the color of the walls. It can be ripped up and new carpet installed. It does not add to the value of the home and you are better off to buy a home in a nice area with orange shag carpeting than one in a blighted area with brand new carpeting.

The color of the appliances. Again, another cosmetic effect that can be easily remedied. This goes for the color of the tub, tile and light fixtures. Do not let cosmetic effects sway you from buying a good house in a nice area.

Dirty house. This is a turn off for anyone looking at a house. There are people who are allergic to pets and those who abhor cigarette smoke. Furthermore, no one wants to buy a dirty house. However, you can usually get a good bargain with such a house as there are those who will not see past the dirt and will walk out. For about $500, you can get the house cleaned, including pet smells and cigarette smells out.

One caveat to the above, however, is to be sure that you get a home inspection. You should do this with any house you buy, but if people neglect the home to the point where they couldnft even be bothered cleaning it up before they proceeded to sell the house, you have to wonder what else they neglected.

Another thing that you want to look for is a house that blends in with the neighborhood. Skip the gbiggest house in the neighborhoodh in favor for one that is either the smallest in the neighborhood or fits right in. If you have the money for gthe biggest house in the neighborhood,h you should be looking one step up in another neighborhood at a house that fits right in.

The reason you donft want the ebiggest house in the neighborhoodh is for resale value. Houses are appraised at the amount of the homes in the vicinity. If you are buying the biggest house in the area, the smallest house in the area is dragging the value of your home down. You are better off to have the smallest home in the area and allow the biggest house to raise the value of your home.

Chapter 5 - Where To Look For A Home

You want to look for a home in a location that is either up and coming or one that is firmly established and in which the housing prices are appreciating in value. You want to stay away from blighted areas that are neglected by the city or area in which they are in. These usually make a poor investment and some even depreciate in value. Although the home will generally be worth more in 10 years than what you paid, the better the area, the more increase you will see in your equity.

Equity is the amount of money that the home is worth on the market less any amount you owe on the home. Your home should appreciate in equity each year. If the market is hot in your area, the equity will rise quicker than if the area is going downhill.

Take a look at the area in which you wish to live and figure out the following:

ｷWhere the growth is occurring

ｷWhere are the most coveted areas in which to live

How To Figure Out Growth

If you are looking to purchase a home in a suburb, as most people are, then you should note where the growth is occurring. Take a look at the city and see where the undeveloped areas are. If you look south of the city, what areas are expanding? Take a map and look at the areas that have expanded over the two decades near your city.

If you lived in Chicago, for example, you would note that the growth was going Southwest and West. The growth was stagnant East of the city and North was pretty much all built up. If you purchased a property North of Chicago, you were going to pay top dollar, but were assured of a stable property value.

If you purchased property East of Chicago, you would see no real change in value. Housing prices did not rise or fall. They were pretty much stagnant.

If you went West, you saw a boom. The growth was going west and if you purchased a home in a suburb like Naperville 20 years ago, you saw the housing prices rise considerably in the past two decades. The same way if you went Southwest to an area like Orland Park.

If you went even further West or Southwest, you were getting property even cheaper and waiting for the boom to hit. In Chicago, a new expressway opened in the South, near the city of Joliet. This enabled growth in the South region as well. If you live in Chicago and were looking to find an up and coming area, you would look to the Southwest or West as that is the growth trend in this area.

Every city has an area where there is a growth trend. In order to see it, you merely have to take a look at a map and see the population differences since 1980 and today and you will see the growth trend. Some areas are leveling off and those are stable areas. Some areas are stagnant and have not changed much in past 20 years. Some areas might even be declining in property value and may be receiving an influx of crime.

Other areas are stable and thriving. In Chicago, this would be the North side of the city. This is a sure thing when it comes to property values.

Which Are The Most Coveted Areas In Which To Live

This is easy to figure out. They are the areas in which the home prices are the most money. Everything in real estate is based upon location. A shack in a good location will fetch more on the market than a really nice home in blighted location. And you are better off to buy that shack than the nice house.

When purchasing a home, look for the best house you can afford in the nicest location possible. If you cannot afford the posh neighborhood or area, settle for the one right next to it. You are better off with a smaller home in a good area than a palace in a blighted location.

Look at school districts, crime rate and median income levels as well as the prices of the homes in the area and how they have changed in the past few years. This will give you an idea on how nice the area is.

If you are seeking to buy a home in a small town, you have less choices. Small town homes have usually the “good side of town” and “the wrong side of the tracks.” You can tell this by simply looking around the town and seeing the poor homes that look dilapidated and the homes that are well kept. Some small towns are all “the good side of town” and some small towns are simply “the wrong side of the tracks.” If you are looking for a home in a small town, look for one that has some sort of industry and is a pleasant place in which to live.

Once you have figured where to look for a home, you can start actively looking in the area. You can do this with a real estate agent or on your own. There are some homes that are “for sale by owner” which will not welcome a real estate agent inside. In those cases, you will have to call the seller and make an appointment. If you decide to purchase the home, you will have to draw up a contract. This will be discussed in a later chapter.

Chapter 4 - Finding A Mortgage Lender

Before you can make an offer on a home, you should have either a pre-approval letter or be pre-qualified for a loan. Most real estate agents do not want to waste time with people who want to look at homes but are not qualified to purchase them. Although, with today’s market, they are a little less picky.

You should have an idea of what amount you can spend on a home and how much your monthly payments will be. You should talk to a few lenders to find out their loan packages.

If this is your first home, you have an option of getting a conventional loan or an FHA loan. If you served in the military, you can also get a VA loan. An FHA loan is backed up by the federal government and usually offers a lower interest rate than a conventional loan. A lot of sellers don’t like dealing with FHA loans because of the fact that they are backed up by the government and require inspections. They also require the seller to pay points and expenses that are normally assumed by the buyer. This is usually reversed outside of closing.

A VA loan operates pretty much the same way only is backed up by the Veteran’s Administration instead of the federal government. Again, a lot of seller’s don’t’ like dealing with these type of loans, although they do give the first time home buyer a break.

If you put less than 20 percent down on a home, chances are that you are going to have to pay PMI. This is premium mortgage insurance. PMI is not like home insurance or mortgage insurance for you - it s a policy that the lender is getting to insure them against loss if you default on your loan.

If you buy a home with a VA or FHA loan, you do not have to worry about PMI. This is because the federal government or Veteran’s Administration is prepared to back up the loan for the lender. This can save you a substantial amount of money each month on your mortgage.

If you get a loan for $120,000 and have PMI, chances are you will be paying $130 a month for this charge. This is not tax deductible and will just be incorporated into your loan. If you got the same deal with an FHA or VA loan, you would save $130 each month (a $120,000 loan on a home where you put 10 percent down).

You can only use an FHA loan once. You can use a VA loan three times. After that, you have to go for a conventional mortgage.

Because lenders are so eager to make loans with today’s market, make sure that you shop around for a good mortgage package. Be sure to ask what the bottom line monthly payment will be. The monthly payment quoted should include real estate taxes, homeowner’s insurance and PMI as well as the principal and interest of your mortgage.

You should try to get the lowest interest rate possible, but because the rates are so low at the moment, stay away from adjustable rates. Interest rates are the lowest they have been in 50 years. Lock in at a 30 year fixed rate if you are planning on staying in your home for at least 5 years. If you are planning on moving in 5 years or less, you may opt for an adjustable rate mortgage that will save you money.

You should not have to pay points in today’s market. Points are based upon the purchase price of your home. Lenders used to require one or two points that were paid to get a lower interest rate. Each point is one percent of the purchase price. This is cash that you have to pay up front for your home.

Points are paid one time only and are deductible on your income tax return. However, because of the current market, most lenders are not trying to get people to pay points.

After you have decided on a lender, you should get a pre-qualification letter or pre-approval letter. There is a difference between the two:

Pre-Qualified

This means that based on the information that you gave the lender, you are pre-qualified for a loan up to a certain amount. You can get this in writing or the lender can just tell your agent that you are pre-qualified up to a certain amount.

It doesn’t take long to get pre-qualified. Generally a lender can even do this over the phone. You are not at the point where you need to supply documentation. A credit check is usually run so that they know how you are rated.

Even if your credit is very poor or you have had a bankruptcy, you can still get a competitive rate in today’s market. You may have to go to a sub-standard mortgage company, but it can be done. And don’t worry about them “selling” your mortgage. Who cares? Your payments are the same in any case. Chances are, if you are looking on the secondary market, your loan will not be sold as quick as if it was on the primary market.

Pre-qualification is easy and takes only a little bit of time. This is a good way to get started in looking for a house in your price range.

Pre-Approval

This means that you are willing, able and ready to close on the house. You have provided the lender with all necessary documentation and have been approved by the underwriter for the loan. You need only to find a home and close. Closing can usually commence as soon as a week or so after pre-approval. In today’s market, it can even occur sooner.

A pre-approval letter is the best armor you can have when you begin looking for a house. This will give the seller an incentive to sell the property to you as you have already been approved for the loan and they need only get the appraisal and set the closing date. When looking for a new home, you are better off to have a pre-approval letter from the lender than a pre-qualification.

The pre-approval letter will have a stipulation. It will say how much you are approved to borrow and how much the home will have to appreciate at in value. It will be contingent on the home appraising out. This will be the only contingency to the letter. If the seller has priced his home competitively in the market, there should be no problem. If the seller has inflated his price, which would be really foolish to do in today’s market, there might be a problem.

There can also be a problem in an area where the house prices are rapidly declining in value. This usually occurs in a blighted area when residents are desperate to sell. Buying a home in a blighted area is not really a good idea, anyway, and we will talk more about that when we discuss “location.”

Before you go looking for a house, get a pre-approval letter or at least get pre-qualified. You will be in a better bargaining position if you have no contingencies on your real estate contract.

Chapter 3 - Getting An Agent

Chapter 3 - Getting An Agent

If you are going to buy a house, you have two choices. The first is that you can ride around neighborhoods that you like and look for “for sale” signs. Then you can call the agent that has listed the home and ask to see the home. The agent will be thrilled to show you the property as he or she represents the seller and will get full commission if you decide to purchase the home. This can work well in your favor as you can offer less based on that premise. This is because most agents make a deal with the seller that if they sell the home themselves, they get less commission.

In addition to possibly getting a better deal on the home, the plus side to doing it this way is that you get to see the outside of the home and the area in which the home lies.

The negative aspect of this way of doing things is that gasoline is expensive and you can spend a lot of time looking at homes that already have contracts on them. The “sold” sign does not usually go up until a few days before closing, if at all. Agents want you to call on the home so that they can sell you something else.

Another negative aspect of this way of looking for a home is that some people do not want “for sale” signs going up in the yard. Some people are very odd about their neighbors “questioning” them about the price of the home (even though this is easy to gain access to and the sale price is actually public knowledge). It also sometimes takes the agent a few days to put the sign on the lawn. You are actually missing out on the newest properties.

When choosing a real estate agent as a buyer, choose one that you like and who will be ready to show you a house at a moment’s notice. You can have more than one agent looking for you, too. You are under no obligation to the real estate agent as a buyer.

You may think that, because you chose the agent and that he or she is so friendly to you, taking you to see all these homes and acting like your best friend, that they work for you. Wrong. They work for the seller. Your real estate agent does not have your best interest at heart - they are in this to make money. This is their job and they don’t get any money unless they sell a house. They get a commission off of the sale of the home so it is in their best interest that you pay as much as possible for the home.

Pick a nice real estate agent who is available, but do your own homework on properties. Do not rely on the agent to “find the best deal” for you. Again, they want to get a real estate commission.

Chapter 2 - Buyer’s & Seller’s Markets

You have heard the term “Buyer’s Market” which is what we are in now. You have probably also heard the term “Seller’s Market” Both have to do with basic economics and the law of supply and demand. This is the difference and how you should behave in both:

Buyer’s Market

In a buyer’s market, there are more homes on he market than there are buyers. This means that the supply far outweighs the demand and the prices of the products are lower. Economics 101 - when supply exceeds demand, prices drop. So in a buyer’s market, which is what we have now, there are many more homes on the market for sale than there are buyers.

When you have a buyer’s market, sellers get desperate to sell their homes. They are competing with a lot of other sellers who also have the same product to sell. It is as if you are at a flea market buying a cell phone. Everyone there has cell phones for sale and there are only a few buyers. But the people who have the cell phones are desperate to sell them. So what to do they do? The undercut the other guy. They begin lowering the price of their cell phones to as low as possible where they can still make a profit.

This means that the buyers can really get some good deals. In a real estate buyer’s market, it gets even better. Because no one has to sell cell phones, but people have to sell their homes. Those who are selling in a buyer’s market either have no choice or are desperate and panicking. This means bargains galore for buyers.

In order to take advantage of a buyer’s market, you can offer a lot less than the listing price of the home. If you are working with a real estate agent, do not listen to the real estate agent and think that you have to bid high or the people will be “insulted.” If they get that insulted, find another house. The real estate agent gets a commission off of the sale price of the home. The more you bid, the more money they can make.

If the real estate agent says something you like “I won’t even make an offer like that, it’s insulting.” Thank them for their time and then tell them that you are going to find another agent. Chances are very good that they will make the offer. There are thousands of real estate agents that would jump at the chance to make any offer during a buyer’s market.

So, during a buyer’s market, you are better off to buy property at rock bottom prices and hang on to any property that you have. If you want to take advantage of new construction and move to a bigger house because of the buyer’s market, rent your existing house out to other people instead of trying to sell it during a buyer’s market.

Seller’s Market

A seller’s market is just the opposite of a buyer’s market. This usually happens just as the economy gets a boost and after a recession in the real estate market, which is what we are in now. People have not been selling and buying in a long time. Then something happens, like the interest rates get lower or there is renewed faith in the economy, and a boom hits the housing market. Pretty soon, there are more buyers than there are houses for sale.

The last true seller’s market in the United States was in the 1980s when interest rates plummeted down to 12 percent from 18 percent. People began buying houses like mad. Lenders were very busy and you would have to make repeated calls to get them on the phone. Title companies were overburdened with an onslaught of not only people purchasing homes, but actually for the first time, refinancing their mortgages. The 1980s sprouted a whole bunch of new businesses and made way for a lot of new title companies and mortgage lenders.

To give you an idea of what the seller’s market was like in the mid 1980s, a home would go up on the market and would be on there for only a few days before they would have a contract. People would have “open houses” on their homes and get several different offers and have the opportunity of picking the best one. There were cases where people actually bid higher than the asking price for the home in order to secure the home.

The seller’s market is obviously the best time to sell. Although we have not experienced a true seller’s market throughout the nation for some time, we often see a seller’s market in areas where it very desirable to live. There are still areas like this in the United States today, where they have a seller’s market. These are usually either upscale neighborhoods and homes or moderately priced homes in really nice areas.

You can tell when you’re in a seller’s market in your area by the amount of homes on the market and the length of time they remain on the market. If you have a bunch of “for sale” signs sitting in yards all over the place and no one buying them, and the signs sit for months, chances are that you are in a buyer’s market. If you see a quick turnaround in signs and sales, you can tell you have a good chance to sell. Coveted areas always have it much better than the rest of the nation.

If you want to buy during a seller’s market, you are better off to buy new construction. New construction will usually appreciate in value quite a bit from the time construction commences to the time that it is finished. This is what people were doing when they were “flipping” homes. Investors were buying new construction in upscale neighborhoods, waiting a few months for the home to be completed and then selling it to a buyer at a profit.

Buying new construction is always better in a seller’s market.

Today, we are in a buyer’s market. Again, if you have been thinking about buying a house, there has never been a better time to do so than right now.