Ten Questions Home Buyers Should Ask
You could go crazy with all the details involved in buying a new home. But if you can nail down these ten points, you´re a long way from making the Big Mistake. And it´s a hardened soul, indeed, who doesn´t fear that as closing day nears.
- How much cash will you have to live on each month?
You can´t count on your mortgage lender to keep you from getting in over your head. The old standards of allowing 28% of your income for mortgage debt (including taxes and insurance) and 33% total debt usually still apply, but if you´re taking out an adjustable-rate mortgage, you´re usually qualified on your first-year payments. Assume your interest rate will jump two percentage points in the second year, and base your budget on those numbers.
Your real estate agent or mortgage lender should estimate your total monthly payments, including principal, interest, property tax, insurance and private mortgage insurance (if your down payment is less than 20% of the purchase price). Assuming your federal and state tax rates add up to 33% and you itemize deductions on your tax return, you can subtract one-third of your interest and property-tax bill to arrive at your after-tax monthly cost. You can claim that income-tax break right away by filing a new W-4 with your employer to cut your payroll tax withholding. Run these after-tax payments through your budget to see just how tight your finances might be. Oh, and don´t forget to add the $5,200 that the National Association of Home Builders says the average buyer of a new home spends in the first year on appliances, furnishings and changes to the property.
- Can you get your mortgage approved early?
Get a lender´s preapproval in writing for a mortgage amount you´re comfortable with before you go home shopping. If you´re not sure you can stomach an interest-rate increase between the time you´re preapproved and the time you actually apply for a loan, check out Countrywide´s Lock and Shop program (800-877-3626), which will lock in an interest rate for 30 days before you find a home and then for another 45 days once you´ve found it.
- What´s the most expensive house in the neighborhood?
Preferably it´s not the one you´re about to buy. If so, your neighbors´ lower property values will hold down your own home´s appreciation in the years to come. Start your research with the multiple listing service (MLS). Sharon Sigman, a broker with J.D. Reece Realtors in Shawnee Mission, Kan., says if the MLS doesn´t show any comparable sales in your price range, it´s worth checking the property-tax records. Although in some cases they don´t reflect true market value, you may be able to spot high-valued homes that haven´t changed hands recently.
- What about undeveloped land?
That vacant land only looks like a couple of acres of woodland. Unless it´s parkland, it´s actually a parcel of developable real estate ? and you might not like what develops. "The zoning can change," says Sigman. "It´s vacant now, but they can rezone it." Check with your local zoning board to see if there are any appeals pending. Plus, keep an eye out for the type of development that is happening nearby; the same thing could be coming to your neck of the woods.
- What´s the commute like?
Never buy a home without experiencing a real rush-hour commute. A nice, quiet residential street could turn into a commuters´ feeder route come Monday morning. Persistent local bottlenecks could double your daily drive time from a weekend estimate.
- Do you have city services, or will you live off the land?
Some of the nation´s most luxurious homes are in rural or semirural areas ? far from municipal sewer systems. If you´re buying a home with a septic system, you must have your inspector make sure it´s adequate, says Ron Passaro, a home inspector in Bethel, Conn., and spokesman for the American Society of Home Inspectors. "Not everyone has them, but if you do, I can´t think of anything that costs more to replace." How much? $20,000 to $30,000.
- Does your plumbing system date to D-Day?
If it does, it might not be made of copper, the preferred material since World War II, says Passaro. Older plumbing made of galvanized steel or brass is usually "really shot," he says. New plumbing for two or three bathrooms could cost $5,000 to $6,000. On the structural front, pay close attention to the foundation. If it shifts, your equity cracks along with it. Make sure your home inspector looks for foundation cracks and signs of dampness.
- Is the school system any good?
Even if you and the dog are all the family you´ll ever have, it´s wise to buy a home in a good school district It will be much easier to resell for a profit if families are looking to get into your schools. If your real estate agent won´t help you come up with hard data on test scores and teacher-student ratios, check with the schools themselves. You can buy a report card on schools for $34 from School-match (http://www.schoolmatch.com, or phone 614-890-1573)
- Will you have to grease the doorways to squeeze in your furniture?
Don´t laugh ? it happens all the time. Don´t rely on the room dimensions posted on the MLS; they´re often inaccurate. Measure your piano and Grandma´s old breakfront, and make sure they´ll fit before you bid on the house. Another frequent problem is getting the box spring for a queen-size bed upstairs. Or furniture downstairs.
- Will your family be subject to a rule-happy homeowners association?
Review the rules to see if any might cause you problems. Restrictions on where (and what) you can park are common, as are rules about paint colors and what time of day the trash can must be taken in. One of the most contentious issues these days is basketball. Can you mount a hoop on your garage? Is even a portable basketball hoop verboten? And will the association cry foul if your kids and their friends play some raucous b-ball after school? Also take a close look at the association´s reserve study to see if homeowners have been putting away enough money to pay for street repaving and other maintenance.
Excerpted by permission from the June 1997 issue of Kiplinger´s Personal Finance Magazine ©1997 The Kiplinger Washington Editors, Inc.
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