Friday, July 12, 2013

Are You Really Ready to Buy a House? Five Top Questions to Ask

When people start thinking about buying a home, all kinds of thoughts and questions enter their conversations. "Why not keep part of the monthly payment instead of giving it to some landlord" is one. "It will be nice not to have to hear the neighbor's stereo rattling the wall," might be another. "Can I save for the downpayment" always comes up.

While those are important, here are five questions to answer in deciding if owning a home is right for you.

1. Do you make enough money to cover costs of maintaining a home?

All too often, would-be buyers consider the downpayment and the monthly mortgage payment to be pretty much the cost of owning a home. But maintenance and repair is a significant cost. If the motor fails in the refrigerator, for example, can you afford to replace it?

Buyers-to-be coming from rental properties are used to calling the landlord if something breaks and are often unprepared to handle unfortunate events on their own. The life cycle for a furnace, for example, might be 15-20 years. If the furnace in your new home is eighteen years old, are you prepared to deal with a new one?

2. Are you willing to Stay in the Home for Five Years?

On a $200,000 mortgage loan at five percent interest, about $240 of the nearly $1100 monthly payment goes to principal for the first few years. That's not much equity buildup. And a home purchase has a many upfront costs, such as appraisal charges, home inspection fees, points and so on, which can run into the thousands of dollars. If you sell fairly soon after buying, your chances of having enough equity to recoup the upfront costs are extremely low. If you use a broker to sell, the sales commission has to be added onto the other selling costs.

If you bought a home for $200,000 and sold it two years later, you could have accrued expenses and sales costs of $12,000 to $15,000 or even more. Would the home have appreciated in two years to cover these costs? Probably not.

The five year timeline is arbitrary, but it makes the point. If you think you might get a job transfer or go to grad school, you should consider delaying the home purchase.

3. Are you set for a never-ending home improvement project?

Fixing plugged disposals and toilets, painting rooms, changing the flooring, mowing the lawn, planting the garden, shoveling snow--this stuff goes on and on and on. Some is optional, more is not, so buyers need to steel themselves to the notion that they won't be going out on weekends and instead will be spending a lot of time at Home Depot or Lowe's.

Which can be rewarding, by the way. New owners very often discover their inner carpenter or gardener and enjoy the work it takes to not only keep their homes up, but make them nicer than they were. But buyers are better served if they understand and appreciate what's coming up.

4. Can you adjust your wants and make compromises?

Here's a nasty fact: The perfect home doesn't exist. Even people who have built their own homes, including Yours Truly, don't end up with the perfect home.

Especially in the current market of low inventory, buyers will need to back off on some of the features they want. Bedrooms may be too small, the master bath may not have a tub, the garage may not be big enough, and so on. Repairs and upgrades the buyer can't yet afford to make may have to be accepted for now.

This is especially true with short sale and foreclosure homes, most of which have been left unattended or even trashed. For better or worse, these homes make up a significant part of the homes buyers will be viewing. Serious buyers, therefore, need to make some compromises.

5. Will you take the time to really understand the market?

When I was licensed, I liked representing buyers because they knew the market better than sellers did. They knew more, because I made sure of it.

HGTV programs notwithstanding, learning the market is hard and tedious work. Buyers have fun with the first batch of homes they view, but after fifteen or twenty, the thrill wears off. Spending evenings and weekends looking at home after home, most of which just won't do, wears people down.

But the tradeoff is that at some point in the process, those buyers know what a house is worth, and the knowledge is empowering. But it takes work to get there, and people entering the housing market need to appreciate the effort they need to make.

Of course, there are more questions people may ask, but I think these are the most important. Do you have thoughts of your own? Let me hear them!