Home Buying Tip for the Week of January 05

Mortgage rates are starting off on a good note for the new year. 30-year mortgages are near 5% and expected to reduce further in the weeks to come. So if you are in the market to buy a new home soon, get ready.

tip: about arranging for home financing | negotiating mortgage rates

Should You Buy A Fixer-Upper

Before the current housing bubble popped, investors were scouring the marketplace for homes needing a makeover with the intention of fixing them up for a quick flip. Savvy investors were able to buy a house, make improvements within a few weeks or months, and turn around and sell the renovated home for profit.

It wasn't unheard of for investors to come away from their deals with profits exceeding 20K, 50K, even $100,000 or more. Indeed, a television series, Flip This House, popularized this trend.

Today, much has changed as the number of homes available on the marketplace has increased sharply. True, it is a buyer's market and wonderful deals can be had, but the profiting from a real estate flip has all but dried up as well.

Four Factors To Consider When Buying A Fixer Upper

When purchasing a home that you expect to turn around and sell there are four factors to consider:

1. Purchase Price -- The lower price you pay, the more room you have for profit later.
2. Renovation Expenses -- You need a ballpark figure to understand what the "fix up" costs will be. Allow for surprises such as termite damage, a wall that must be removed, exterior changes, and more.
3. Carrying Costs -- The longer you own the home, the higher your costs for utilities, mortgage, taxes, and insurance will be.
4. Anticipated Resell Price -- How much will your home fetch once it is ready to be resold? Is the market stable enough to come up with a reasonable price? A real estate agent can help you "guess" the price, but you won't know what the market will bear until you put the home on the market.

Finally, if the market isn't strong once your fixer upper goes back on the market, will you be able hold onto your investment or will you be forced to slash prices in order to sell?

No one wants to be stuck with a money pit, so do your homework and hope for the best.

Location Location Location

You've heard it before: what are the three most important things to consider when buying a home? Answer: location, location, location.

Every real estate agent repeats this question, drilling into prospective homeowners the reasons why location matters most -- home values and your personal satisfaction will hinge on which home you have chosen.

Besides the home itself, there are some things you should do to decide whether your potential purchase is worth it:

• Are the homes in your neighborhood being kept up?
  One house in disrepair is enough of a burden, but if that neighborhood has several homes in poor condition, then you could be witnessing the beginning of blight. Almost like cancer, deterioration tends to spread across neighborhoods where homeowners are not caring for their properties.
• What sort of zoning restrictions are in place?
  You may be able to put up with neighborhood or association covenants, but what is allowed in adjoining areas? Having a home backing up to forested land can be ideal until you have learned that it has been zoned for business development. Do you really want your future neighbors to be a business?
• Is your neighborhood a candidate for unwelcome change?
  New laws allowing towns to exert eminent domain over an area could change your community drastically. Check with the town to see if the planning board's future plans for your new neighborhood could include rezoning or some other important changes.

Other factors can also make or break your new neighborhood:

• Is it convenient to work, schools, and shopping?
  With gas prices surging, longer commutes are getting to be one big cost many homeowners must face. That bucolic tract of land in the country is fine, but if you must drive everywhere, is it worth your time and expense?
• Who provides your local services?
  As you turned into your sub-division, you took note of the fire house nearby. Will they serve your home or will you have to call on the fire department across town? Water, sewer, and garbage removal are other services which aren't always included with your taxes -- what will your costs be to have the town provide services or will you be required to arrange your own garbage renewal?
• The better the schools, the better for you.
  Even if you do not have school-aged children, having excellent schools serving your neighborhood is beneficial to your neighborhood's stability. Excellent schools add value to the neighborhood as families seek them out. If your schools under perform, then your housing values will suffer accordingly.

Lastly, obtain a copy of the police report for your neighborhood. If crime is an issue, that report will reveal whether your community is safe or not. Of course, telltale signs such as bars on the window and alarm systems galore could be just the warning you need to look elsewhere.

Yes, location matters -- do your homework to make sure that your neighborhood is, in fact, one you will be happy to live in.