What you need to know before buying a home
Always a Buyers' Market
by Joseph Love
Buying a Lease/Option Home
Buying a Home in a Buyers' Market
Small House, Happy Home
Spend smart. In this market, a less appealing, smaller house needing renovations can be found incredibly cheap. It not only provides you the opportunity to personalize your home, but can significantly increase in value when the market picks back up. This is a long-term investment with short-term benefits (smaller, cheaper houses require less energy and have lower taxes). Choosing a 15-year loan might result in larger payments, but you'll wind up paying tens of thousands of dollars less than paying over 30 years. Starting with a 10-20% down payment and strategically overpaying so as not to incur penalties will always save you money. You might not have as much spending cash from month to month, but in 15 years, you will have a paid-for house, a super-jump in income thanks to no more payments, and the market will have improved enough for you to sell at a good profit. Just remember that this is a long-term plan. It might just take a few minutes to read this article, but you have to stick with your plan for 15 long years. No one said that it was quick. Your kids will be out of the house by the time it pays off.
Buy old construction instead of new. A lot of people find comfort in buying a home straight from a builder. Everything is new, functional, and covered by a one-year warranty, but there is a considerable price for this comfort.
In 2010, approximately 500,000 new homes were built in the United States. In 2005, before the bust, construction was started on over 2,000,000 units. To give you an idea of how big this shift is, new home construction in the US has never been under 1,000,000 homes since 1959. So, how does an industry with 52 years of steady demand cope with this sort of downgrade? They build low and sell high. That's not to say all builders cut corners and use cheap products. However, some responsible builders are so good at cutting construction costs they turn higher per-house profits than when the market was booming. While maximum efficiency is something to applaud in this historically wasteful industry, it should be the standard and it shouldn't cost extra. After all, they're using less and charging more?
Older houses might be selling for more than they initially cost to build, but their prices are much more negotiable than new ones. Besides that, houses built before the 1950s are typically overbuilt with hardwood framing and solid doors and, according to some, have more charm and feel warmer than new construction. With older houses come the increased possibility of maintenance issues, so it pays to be picky when buying. Hiring a home inspector is a small investment that gives you the whole picture of your house and some leverage when it comes time to make an offer. Maybe the homeowners will drop the price or fix whatever defects are found.
Be demanding. After all, you're the boss! If you absolutely have to buy a new home or are building your dream home, remember that it's still your money. You pay for the builder, the contractors, the laborers, the materials, and all the fuel, insurance, and port-a-potties. If your schedule allows, show up to the job site and be critical, and don't be intimidated by sweaty dudes with hammers. Is there an excessive amount of material in or do the workers seem to be milling around instead of working? All these things waste your money.
If you're paying a quarter of a million dollars for a house (or even one-tenth of a million), you have the right to say how it's spent. Of course, not everyone has this kind of open schedule or the eye to know what's going on at a construction site. Still, you can ask for the final invoice and then do your research. It's easy to take a builder's word. After all, he knows what something costs and you don't, right? Get real. If they offer you a lighting upgrade for just $200, odds are that they get it half-off or at warehouse closeout pricing.
You're the most powerful marketing tool in real estate. No other business relies on word-of-mouth the way home buying does. If you have a great experience, you're going to let people know. However, if you deal with just one rude or uncooperative person, you won't be able to find enough people to tell. Real estate agents, builders, appraisers, and inspectors are all very aware of this, so they are probably more willing to do extra work to get you a better deal than you think. All you have to do is ask.
Joseph Love is a home inspector and construction manager.
Take the Next Step:
- For more on what you should know before buying a home, please click here.
- If you haven't looked for a lower mortgage rate in the past year you could be wasting money each month. Use our simple tool that compares different lenders to see what your monthly mortgage payment could be. It's private, only takes a minute and could show you how to save thousands!
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- How to save on mortgage as rates rise
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