Penny Seeds

It’s truly a buyer’s market right now for those that are financially able. If you’ve been wanting to buy a home for a while this could be your opportunity to get an awesome deal. Here’s some things you may want to look out for.

I’m currently in the process of buying my first home! I’m buying a 3 bedroom, and 2 bath home that needs virtually nothing done to it for $85,000. It may take some patience, but you can get a great home for rock bottom pricing if you’re diligent about what you want.

Before you go hunting there’s a few things you should figure out so you can really compare prices. A house that looks like a good deal might really be a train wreck.

Fixer Uppers

The agent that shows you the house will most likely tell you with only a little work this could be a great house. However, make note of repairs that need to be done. Things like paint, and carpet are not a big deal, but other things could be. New drywall, water damage, and other seemingly ’small repairs’ could end up being very costly. If you don’t know how to fix it then it’s best to move on.

Flood Zone Houses

Many houses will be cheaper if they’re in a flood zone. I live in an area that can be bone dry, and then ankle deep in water over night. Mother nature is fickle, and you don’t want to be using your couch as a life raft. Your insurance will be much more expensive to boot. If your house is a wood frame, and it floods you could be in a lot of pain. Almost any house remotely close to a body of water will be considered ‘flood zone’. Now, if the house you’re buying is on a high point of the street it may still be very unlikely to flood. That doesn’t mean the insurance company will not charge you an arm, and a leg. It simply means that if you really like the home it should be relatively safe.

As Is housing

The majority of the housing available are foreclosures or short sales. There’s nothing wrong with buying these homes as long as you do some homework. Your bank will most likely require inspections anyway, but if you’re paying cash it’s up to you! As is means that after you buy the house the owner and the bank will fix nothing. It’s your problem. You can buy a one year insurance policy from a private company for $350 in case of anything going wrong. If you suspect things like the hot water heater or the air conditioner not to last it may be a good plan. They’ll pay for 100% of repair/replacement minus a $50 deductible.

Taxes

Pay close attention to the tax status of your home. Depending on many factors you could be paying several hundred dollars a month more than a similar home in a different location. While it seems they’re the same your expenses could be up by $200 a month by purchasing one home over another. Don’t expect the taxes to drop dramatically based on what you paid. While they may appraise the house slightly lower don’t expect to pay taxes on a 2,200 square foot house based on your $40,000 short sale price.

Wood Frame versus block construction

Many people are leery of a wood frame house, especially banks. Personally, I think they are just as structurally stable as a concrete block home. I lived for most of my life in a two story wood frame house inbetween the bay, and the beach. It weathered many storms without damage. Infact most of our neighbor hood was composed of wood frame homes, and they’re still standing strong. It’s up to you, but purchasing a wood frame home could be much cheaper. As, now block construction is much more desirable asthetically.

Swimming pools

Don’t expect a home to be more valuable based on having a pool. Think of this more as an expense. It will cost a lot of money to maintain, run the pumps, clean, buy chemicals, and pay for insurance. Due to the fact of drowning being such a high risk with pools your insurance will eat a hole in your wallet. If you don’t really want a pool it may be best to skip it over. I didn’t see it as being worth the trouble. I’ll just go to the beach instead.

Extras

If a home’s price seems inflated compared to another keep in mind the extras included. Does it have wood floors, ceramic tile? Stainless steel appliances or hardwood cabinets? These all cost a pretty penny. If you’re happy with plain old white cupboards, cheap carpet, and stick tiles your home price will reflect it. If you want these extras it will be easier to buy a home with these items already. Personally, I made sure to find a home that was mostly ceramic tile already. So, I would not have to do as much work later. Keep in mind you can also refinish your cabinets instead of replacing them!

Location

Location is a big portion of the price of your home. When you buy a house that’s fifty feet from the beach you are not paying for the home. You are paying for sand. A home in a densely populated area will be more money, because of availability. If there’s no more available land in that area then the housing prices will reflect that. If you purchase a home slightly out of the clutter your home will be cheaper. This will also probably be less noisy, less traffic, and a better experience in my opinion. I looked at a home in the center of town that was virtually identical in size to my home. The only difference was location was better, but the extras were not as nice. The taxes though were three times as much money.

Utilities

Homes that are not hooked up to city utilities will be much cheaper. Even if this doesn’t bother you now, keep in mind that when the city decides to run piping they could force you to hook up to it. Even if you like your private utilities. I don’t like well water, so I made sure to get a home on city utilties.

Older houses

A home that’s aged will not be as pricey as a brand new home. This doesn’t mean that the house is not solid, just that it may need some updating to make it modern. If this doesn’t bother you then don’t be afraid to purchase an older home. While many people will argue that older houses have problems, so do new ones. Just talk to all the happy new owners of chinese drywall homes.

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Even if you’ve checked your credit, and ran the numbers you may still be under estimating the cost for getting your own home. Here’s a few things to look out for that may cost you a pretty penny.

The majority of the homes for sale right now are either bank owned foreclosures or short sales. A short sale is a house that is not quite foreclosed on yet. Typically the seller is making a deal with the bank that if they can sell their home, and recoup some amount of profit then the bank lets them out of their loan. With the great number of liability properties popping up this makes a good deal for the bank.

There’s nothing wrong with purchasing a short sale or foreclosure (I’m doing so right now!), as long as you’re aware of a few things.  Firstly, short sales are not usually quick dealings. You can offer anything you want, but the bank has to approve this offer before you can close. Depending on how picky the lender is this could take many months. If you’ve got time to wait like I do then this is no big deal for you. However, if you need to relocate sooner than later you may need to avoid this type of dealing, and search for regular listings that will close faster.

Secondly, you’ll want to be sure to thoroughly inspect a home before purchasing it. You should do this with any home you purchase, but certainly a foreclosure or short sale. When a person is losing their home it really gives them no reason to take care of it, and you can never be sure what type of damage or repairs the house has sustained in years past. If you’re working with a lender then you will most likely be required to hire a home inspector, but if you pay cash then it may be up to you. I would certainly recommend doing it even if you aren’t strong armed into it. As a side note if you’ve already signed a purchase contract, but the inspection reveals facts that could affect the value of the home that you were not previously aware of you can walk away.

Forgetting closing costs, and down payment here’s some other things you could be expected to pay for out of pocket. Depending on where you live all of these may not be the case, but it is in the state of Florida.

Home inspection $300

Home surveyed (Based on home square footage $80 - $200 a sq foot)

Property Appraisal ($250 -$400)

First year’s taxes (Varies depending on home value)

First year’s insurance premium (Varies by area and home value)

Escrow ($500 for your offer contract, and up to $2,000 after your offer is accepted)

Loan processing fee (I know Bank of America will charge you a pretty $400 to start working on your loan)

Mortgage points (If you mortgage requires points you could pay a couple extra hundred or thousands of dollars)

Private Mortgage Insurance $1,000 a year(If you don’t put enough money down your bank may make you get this to protect THEM.)

Some other factors you should be aware of that could save you big bucks are..

Buy outside the flood zone - Buying in the flood zone will make your insurance much higher. Not to mention you may actually flood!

Watch the property tax assesement - If you use a site like Zillow or even read the paper work that the realtor hands you then you can get an idea of the property taxes you’ll be paying. Similar homes can have very different taxes depending on what they’re assesed at. If your property taxes are $3,000 a year you’ll be paying about $250 a month, but if they’re $1200 a year you’ll make out at $100.

Check out the area - Buying in an undesirable area could affect you should you ever want to resell your home. Pay attention to your potential new neighbors - they’re property affects yours.

Wind mitigation - If you live in a high risk storm area like I do you may want to get wind mitigation. This is where an inspector comes to your property, and either gives you a passing grade or suggests repairs. If you get their seal of approval your insurance rates could drop dramatically. This could include things like a new roof or hurricane shutters.

Be aware of future repairs - If you buy a home that is hooked up to a well or septic system you could be spending a bundle to be hooked up to public utilities down the road. Sometimes the local government even makes it mandatory for you to do so! This can cost thousands of dollars.

Watch for association fees - Some communities may have fees you’re required to pay to live there. These could be anywhere from $50 a month to a couple hundred dollars a month, and aren’t always voluntary. These might be for lawn care, grounds maintenence, club houses, community pools, ect.

Make sure a “TLC home” is really for you - As hard as a real estate agent may try to convince you that a home only needs minor repairs make sure that it’s true! You don’t want to move into your home, and find out that “TLC” costs a lot more than you can afford or it’s work you can’t do. Make sure you have them elaborate on damages - if you don’t think you can handle more than small cosmetic details like paint, and carpet then keep looking.

Do a walkthrough before closing - In this long drawn out process you’ll want to make sure you walk the home again before you close to make sure nothing has changed. If you buy a home with no warranty (most foreclosures and short sales are) you’ll be stuck with repairs.

Be present for your inspection - You’ll want to know everything that the home inspector finds. Make sure you walk with him, and that you really learn about what you’re purchasing.

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