Buying A Home

Frequently Asked Questions

Q: What is the first step to buying a home?
A: Make sure you are ready – psychologically and financially. Ask yourself the following questions: Do I have steady income? Is my debt lower than my total income? Do I have enough money to pay for the down payment and closing costs? What’s my credit like? A house needs constant care and attention. Also ask yourself if your budget will allow for unexpected repairs and upkeep. Once you can honestly answer “yes” to these questions, you are several steps ahead of the game and that much closer to becoming a homeowner.

Q: What are the advantages of owning a home?
A: There are many. Among the most appealing: you own it, which gives you, instead of a landlord, control of your living space. Other benefits stem from potential tax savings and the buildup of equity as your property likely appreciates in price over time. Equity can be used to help put children through college, purchase a cottage, or make home improvements. The mortgage interest paid on a home loan is tax deductible, as is the local property tax. If you get a fixed-rate home mortgage loan, you also can invest more wisely knowing your monthly mortgage payment, unlike rent, will not change substantially.

Q: How much can I afford?
A: The general rule of thumb is that you can buy a home that costs about two-and-one-half times your annual salary. Your Sherman & Associates sales associate can help determine how much you can afford and estimate the maximum monthly payment based on the loan amount, taxes, insurance and other expenses. To find out now how your income, debts, and expenses can affect what you can afford, use our mortgage calculators to estimate how much you may be able to borrow to purchase a home.

Q: What Are Some Home Buying Negotiation Tips?
A: One of the most frequently asked questions about buying a home is related to negotiating a fair price. Buyers — especially first-time home buyers — want home-buying tips, particularly about negotiating.

While some people feel uncomfortable bargaining even at a garage sale or farmer’s market, in real estate, negotiating is a necessary part of the home buying process. Here are proven home buying tips for becoming a successful negotiator when it comes to buying a home:

Home Buying Tip #1: Know your seller’s motivation. A seller who needs to move quickly because of a job transfer, divorce, or contract on another home is more likely to accept a lower price. In this case, the seller is motivated by closing the sale quickly.

Tip #2: The “listing” or “asking” price is what the seller ideally would like to receive. However, it’s not necessarily what he or she will settle for.

Tip #3: Before you make an offer, know the market value of the home. Your CENTURY 21 Town & Country sales associate will help you determine this by checking recent sales and listing prices of comparable homes in the neighborhood where you’re looking.

Tip #4: Be flexible. Never say, “Take it or leave it.” An attitude like this can ruin the potential for making a deal.

Tip #5: Each time you increase your offer price, ask for something in return such as repairs, appliances, even lawn furniture or the riding lawn mower.

Tip #6: Take a tip from poker players and never show your hand — or reveal your next step.

Tip #7: If you plan to pay cash or have a tentative commitment for a mortgage loan, definitely use your strong financial position as a bargaining tool.

Tip #8: Don’t let emotions get in the way of negotiating the best deal. Leave your pride, fear, anger, and emotional attachments at home.

Q: What contingencies should appear in the offer?
A: When you look to purchase a home, try to anticipate potential problems. But protect against them so that if something does go wrong, you can cancel the contract without penalty. This is what contingencies allow you to do. They should be included in any offer you present to buy a home.

Most offers include two standard contingencies: a financing contingency, which makes the sale dependent on your ability to obtain a loan commitment from a lender, and an inspection contingency, which allows you to have a professional inspect the property. Without contingencies, a buyer could forfeit his deposit under certain circumstances if he backs out of a deal. The purchase contract also should include the seller’s responsibilities, such as passing clear title, maintaining the property in its present condition until closing, and making any agreed-upon repairs.

Q: Is it possible to buy a home below market price?
A: Certainly, but do not hold your breath. It takes a lot of determination and time to find a real bargain. But if you are adamant, here are some likely targets to pursue:

• foreclosed property
• a fixer-upper
• hard-to-sell new homes in a housing development
• Tenant-in-common partnerships

With the latter, you may be able to buy a partial interest in this form of title to property owned by two or more individuals because the partners often sell at a discount. However, bargains are easier to come by in a soft real estate market, when the economy is in a recession, and when homeowners, and builders and sponsors of condominium conversions, are desperate to move unsold units.

Q: Is it best to save for the ultimate dream home or begin with a less expensive starter home?
A: It can take a long time to save for that perfect dream home. Meanwhile, the market has been flooded with some of the most favorable mortgage interest rates in years. Low rates make housing more affordable, which is why so many buyers have jumped on the home buying bandwagon. Home-price appreciation has also been strong, making very solid gains in communities across the country. In fact, home prices are expected to increase 2.5 percent to 3 percent annually over the next five years. If you purchase a starter home today, you can potentially begin to build value that can lead to the purchase of a larger, or more desirable, trade-up home in the future.

Q: How do you decide whether to add on to an existing home or purchase a new one?
A: There are a few things to consider, including cost, individual needs, and what will add value down the road. Also important: your emotional attachment to the existing home. An addition is much cheaper than building a new home and can offer a “new” home without the heartache of moving. Other considerations:

• Can you finance the home improvement with your own cash or will you need a loan?
• How much equity is in the property? A fair amount will make it that much easier to get a loan for home improvements.
• Is it feasible to expand the current space for an addition?
• What is permissible under local zoning and building laws? Despite your deep yearning for a new sun room or garage, you will need to know if your town or city will allow such improvements.
• Are there affordable properties for sale that would satisfy your changing housing needs? Explore your options.