Asbestos Concerns
Many sales agreements mention asbestos by saying "the buyer is aware asbestos may be used in the construction of this home." This can be a little unsettling. Asbestos is a known carcinogen, and when exposed, tiny particles can be released into the air you breathe.
Asbestos is a common insulator used in many homes, and was used for everything from siding to tape wrapping for furnace air ducts and even sometimes in "popcorn" ceilings. There are several remedies that range from the simple to the complex.
Your home inspector can tell you if asbestos is present in easily visible places such as siding, taping, and insulation, and recommend remedies if necessary. More information on asbestos can be found right here.
Home Wiring
The type of wiring in residential homes generally depends on when the home was built, where it was built and if it has been updated. In the older homes, knob and tube type wiring was the norm, replaced later by plastic-sheathed wiring.
In most cases the newer plastic-sheathed wiring is copper, insulated with plastic and then wrapped with insulation and another layer of plastic for protection. Breaker boxes are another story; sometimes a well-meaning home owner can inadvertently make things unsafe.
It is always wise to consult a reputable home inspector and even an electrician before you buy. A little homework today can save you a lot of money down the road. more on home wiring is available here.
Plumbing Alert
You will spot several different types of plumbing systems in any housing market, including our own. Copper, galvanized, rigid plastic, polybutylene, and soft plastic are but a few. Certain systems are more prone to having certain problems.
Galvanized water pipe is most prone to rusting on the horizontal surfaces (such as under a floor) versus vertical surfaces (running up a wall) and it corrodes from the inside out. Some rigid plastic systems have been recalled, while others have fared very well.
The most reliable types seem to be made of copper, but again there can be issues to check: are the hangers plastic lined? Are there any lead solder joints? A good home inspector can help you identify any problem areas before you buy. There are several reputable inspectors in our area that I would be happy to refer.
Lead Paint
All sellers with homes built prior to 1978 are required to fill out a lead-based paint disclosure form and provide you, the buyer, with a lead-based paint educational booklet in any sale. Lead is a highly toxic metal that was used for many years in products found in and around our homes.
Lead may cause a range of health effects, from behavioral problems and learning disabilities, to seizures and death. Children 6 years old and under are most at risk, because their bodies are growing quickly.
On the other hand, there are millions of homes with lead paint out there, and many have been painted and repainted several times so the lead paint is well covered up. If in doubt, have the paint tested and evaluated either at a local laboratory, or with one of the home test kits available at your local hardware store. More information on Lead Paint can be found right here.
Insulation "R" Values
The most important thing to be aware of with insulation, other than the safety issues of urea formaldehyde and asbestos (covered elsewhere), is the R value, or the insulating factor. The higher the number, the better the insulator.
Don't be too shocked if the insulation in the 15 year old home you are considering isn't near the R value of a brand new home. While there is no question you could save on heating bills by adding more insulation, sometimes it can take many, many years to recoup the costs.
Often, gas or power companies have financial assistance programs including low interest loans or even grants available if you boost your insulation. Talk to your home inspector about any upgrade recommendations before purchasing your next home. More on insulation is available here.
Top Things to Know When Buying a Home
1. Don't buy if you can't stay put.If you can't commit to remaining in one place for at least a few years, then owning is probably not for you, at least not yet. With the transaction costs of buying and selling a home, you may end up losing money if you sell any sooner - even in a rising market. When prices are falling, it's an even worse proposition. 2. Start by shoring up your credit. Since you most likely will need to get a mortgage to buy a house, you must make sure your credit history is as clean as possible. A few months before you start house hunting, get copies of your credit report. Make sure the facts are correct, and fix any problems you discover. 3. Aim for a home you can really afford. The rule of thumb is that you can buy housing that runs about two-and-one-half times your annual salary. But you'll do better to use one of many calculators available online to get a better handle on how your income, debts, and expenses affect what you can afford. 4. If you can't put down the usual 20 percent, you may still qualify for a loan. There are a variety of public and private lenders who, if you qualify, offer low-interest mortgages that require a down payment as small as 3 percent of the purchase price. 5. Buy in a district with good schools. In most areas, this advice applies even if you don't have school-age children. Reason: When it comes time to sell, you'll learn that strong school districts are a top priority for many home buyers, thus helping to boost property values. 6. Get professional help. Even though the Internet gives buyers unprecedented access to home listings, most new buyers (and many more experienced ones) are better off using a professional agent. Look for an exclusive buyer agent, if possible, who will have your interests at heart and can help you with strategies during the bidding process. 7. Choose carefully between points and rate. When picking a mortgage, you usually have the option of paying additional points -- a portion of the interest that you pay at closing -- in exchange for a lower interest rate. If you stay in the house for a long time -- say three to five years or more -- it's usually a better deal to take the points. The lower interest rate will save you more in the long run. 8. Before house hunting, get pre-approved. Getting pre-approved will you save yourself the grief of looking at houses you can't afford and put you in a better position to make a serious offer when you do find the right house. Not to be confused with pre-qualification, which is based on a cursory review of your finances, pre-approval from a lender is based on your actual income, debt and credit history. 9. Do your homework before bidding. Your opening bid should be based on the sales trend of similar homes in the neighborhood. So before making it, consider sales of similar homes in the last three months. If homes have recently sold at 5 percent less than the asking price, you should make a bid that's about eight to 10 percent lower than what the seller is asking. 10. Hire a home inspector. Sure, your lender will require a home appraisal anyway. But that's just the bank's way of determining whether the house is worth the price you've agreed to pay. Separately, you should hire your own home inspector, preferably an engineer with experience in doing home surveys in the area where you are buying. His or her job will be to point out potential problems that could require costly repairs down the road.
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Get The Money Issue Right.
For most people, buying a house involves a double financial whammy.
First you have to assemble a pile of cash for the down payment and closing costs. Then you must convince a bank to lend you an even more staggering sum - generally 80 percent or more of the purchase price.
So your first step, even before you start the actual hunt for a property, should be to get your financial house in order.
Start with your credit
Credit reports are kept by the three major credit agencies, Experian, Equifax, and TransUnion. Among other things, they show whether you are habitually late with payments and whether you have run into serious credit problems in the past.
A credit score is a number calculated from a formula created by Fair Isaac based on the information in your credit report. You have three different credit scores, one for each of your credit reports.
A low credit score may hurt your chances for getting the best interest rate, or getting financing at all. So get a copy of your reports and know your credit scores. Try Fair Isaac's MyFICO.com, which charges $15.95 each for reports and scores from Equifax and TransUnion. Experian scores and reports can be accessed from experian.com and cost $15.
Errors are not uncommon. If you find any, you must contact the agencies directly to correct them, which can take two or three months to resolve. If the report is accurate but shows past problems, be prepared to explain them to a loan officer.
Know what you can afford
Next, you need to determine how much house you can afford. You can start with one of the Web's many calculators. For a more accurate figure, ask to be pre-approved by a lender, who will look at your income, debt and credit to determine the kind of loan that's in your league.
The rule of thumb here is to aim for a home that costs about two-and-a-half times your gross annual salary. If you have significant credit card debt or other financial obligations like alimony or even an expensive hobby, then you may need to set your sights lower.
Another rule of thumb: All your monthly home payments should not exceed 36 percent of your gross monthly income.
The size of your down payment will also determine how much you can afford.
Line up cash
If you haven't already, you'll need to come up with cash for your down payment and closing costs. Lenders like to see 20 percent of the home's price as a down payment. If you can put down more than that, the lender may be willing to approve a larger loan. If you have less, you'll need to find loans that can accommodate you.
Various private and public agencies - including Fannie Mae, Freddie Mac, the Federal Housing Administration, and the Department of Veterans Affairs - provide low down payment mortgages through banks and mortgage companies. If you qualify, it's possible to pay as little as 3 percent up front. For more, check out their Web sites at Fanniemae.com or Freddiemac.com.
A warning: With a down payment under 20 percent, you will probably wind up having to pay for private mortgage insurance, a safety net protecting the bank in case you fail to make payments. PMI adds about 0.5 percent of the total loan amount to your mortgage payments for the year. So if you finance $200,000, your PMI will cost $1,000 annually.
Once you've considered the down payment, make sure you've got enough to cover fees and closing costs. These may include the appraisal fee, loan fees, attorney's fees, inspection fees, and the cost of a title search. They can easily add up to more than $10,000 - and often run to 5 percent of the mortgage amount.
If your available cash doesn't cover your needs, you have several options. First-time homebuyers can withdraw up to $10,000 without penalty from an Individual Retirement Account, if you have one, though you must pay taxes on the amount. You can also receive a cash gift of up to $13,000 a year (the limit for 2009) from each of your parents without triggering a gift tax.
Gift taxes are paid by the donor, not the recipient. (In fact, if your and your spouse's parents are both well-heeled, they can give you a total of $104,000 in one year - $13,000 from each of the four parents to each of you.)
Check on whether your employer can help; some big companies will chip in on the down payment or help you get a low-interest loan from selected lenders. You can also tap a 401(k) or similar retirement plan for a loan from yourself.
Pick a Team
Don't buy a home without professional help.
With all the tools and advice available today ranging from books and magazines to online advice like this lesson - it would be possible for you to buy your home almost completely without the aid of real estate professionals. That's not necessarily recommended. The housing market, like politics, is basically local, and each state, city, and even neighborhood has a thicket of local laws or customs that you need to understand. For that, it helps to have a team of professionals to guide you. You might want to start by finding an agent who can represent your interests in the search. This is not as simple as it sounds. Sure, 85 percent of sellers list their homes through an agent - but those agents are working for the seller, not you. They're paid based on a percentage, usually 5 to 7 percent of the purchase price, so their interest will be in getting you to pay more. What you need is what's known as an "exclusive buyer agent." Usually the buyer's agent works for a 3% commission on a regular residential sale. Since the buyer's agent splits the commission from the listing agent in the majority of the cases that 3% commission is covered. If not you will pay the difference which usually runs between 0.5% to 1% and is paid at closing. A buyer's representative has the same access to homes for sale that a seller's agent does, but his or her allegiance is to be only to you. There are also dual-agency brokers. It means, an individual agent in the firm may represent both, parties in the same transaction. Potential conflicts of interest abound in this situation, so if you are seeking a buyer agent but no exclusive buyer agent is available, make sure to ask the agent about conflicts of interest. There are now about a dozen Web sites that help connect buyers with buyers agents, however the best way to get a reliable and efficient REALTOR to represent you is still to talk and ask friends for referrals. Next start looking for a mortgage lender. Take your time, since you could be paying this loan for 30, even 40, years. Start with your local bank and search with 2 or 3 lenders.You may also want to check out the rates to have an idea what you should expect for this you can search onlline. Once you have an idea of the best rates from national lenders, get on the phone to your community banks and any other institutions with which you may have a relationship. Ask if they can beat the national rates. Often, the local lender can offer a better deal simply because he or she knows the local market and wants to keep your business. You might also consider using a mortgage broker, a middleman who keeps tabs on rates from a multitude of lenders. The mortgage broker isn't paid directly by you but gets paid by the bank. However, the fee - usually 1.5 to 3 percent of the loan amount - may get transferred to you in the closing costs. Most search engines have extensive listings of mortgage brokers. There's also a trade group, the National Association of Mortgage Brokers, which can put you in touch with a broker in your area. If you have a REALTOR check with her so she can give you a couple of local referrals.
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