An important factor that is often overlooked and can seriously affect the affordability of homeownership is home maintenance.
When you buy a home, you’re not just agreeing to take on the responsibility of repaying your mortgage lender (principal and interest), property taxes and homeowners insurance (PITI), you will also have ongoing maintenance expenses that need to be budgeted for in advance.
Include an inspection contingency in your purchase contract and never forgo an inspection of a property you’re considering buying. Find out as much as you can about the property upfront and how much it will cost to make repairs.
If you unexpectedly have to replace the roof in the first year of ownership and haven’t set aside money for this, or negotiated a concession from the seller, you could find yourself in a financial bind.
Before you even look for a home to buy, or decide if you’re going to buy, find out if you can afford to buy a home in a location where you’d want to live. Talk with a mortgage person and be completely candid about your financial situation — how much cash you have for a downpayment, your employment, debts and what your credit check shows.
Ten years ago, buyers were encouraged to stretch to buy the most expensive home they could afford. To some extent, there is still wisdom in this advice, with one caveat: You shouldn’t buy today if you are not prepared to keep your home for about 10 years.
This means you need to buy a home that will take care of your housing needs for the long term. However, stretching financially to buy that sort of home is risky.
Interest rates are extremely attractive today — in the mid-4-percent range, which allows buyers to buy a bigger home, or one in an area they might not have been able to afford when interest rates were 1 percent higher. It’s tempting to put that cheap money to work for you.
Now is not the time to have all your money tied up in a home. If you or a partner is laid off, do you have enough cash reserves to weather a period of reduced income? If not, you should buy something less expensive that won’t force you to have to sell in a down market. You need to be able to accept that the market value of your home could decline before it increases.
The Internet is a great resource for homebuyers. But, don’t believe everything you read and see on the Internet. Internet advertising is not regulated. Don’t skip due diligence investigations because you’re too busy or don’t want to spend the money on investigations, or because you don’t want to fly from out of state to examine the property in person.
This is the first recession in more than 30 years where real estate agents didn’t drop out in droves and move on to other jobs. In most cases, they can’t find other work. There are way too many agents in the business now to support the reduced demand. Make sure you work with an experienced agent who is a career professional and will give you the advice and guidance you deserve and need in this challenging market.
Expect the loan qualification process to be arduous. Be cooperative and act quickly, even though you are asked for documentation that you think is ridiculous. Don’t remove your loan and appraisal contingencies from the contract until you know that you’ve satisfied all the lender’s conditions, even if this means asking the seller for an extension.
THE CLOSING: The economic recovery will take years, which doesn’t mean you shouldn’t buy a home now. Just be sure you wait for the right house at the right price, even if it takes time.
