Real Estate

What does “renting with an option to buy” mean?

2008-01-28T16:11:00Z

It’s tough to sock away funds toward a down payment when you’re laying out rent every month. No wonder rent-to-buy arrangements seem like a sweet deal.

How They Work: These agreements allow you to pay rent monthly on your apartment or house, with some or all of your payments being used to defray the cost of eventually buying it. Usually you’ll have a contract at the outset specifying how long you can rent and what portion of your payments count toward the down payment.

The Pitfalls: The apartment or house may carry a higher price tag than if you had bought it on the open market. That’s because the seller is getting the money in dribs and drabs, not all at one time. Also, at some point, you’ll still need to get a regular mortgage to complete the deal.

Tip: These transactions can be complicated, so find a buyer’s agent with experience in lease-to-buy deals. She’ll walk you through the process and protect your interests.

-- Betsy Wiesendanger

How do we find an up-and-coming neighborhood?

2008-01-14T10:34:00Z

You should work with a real estate agent -- it is part of their job to stay in the know -- but you can also do some research on your own. Snoop around to see if homeowners are remodeling because this is a sign that they’re invested in the community and want to increase property values. Also, look for chic new restaurants (read the paper for reviews), art galleries, and coffee shops. Nothing in sight? If there’s a town you like but don’t know if it will make “up and coming” status,” head to a town meeting – it sounds crazy, but it’s a great way to find out if new shops and/or developments are on the horizon.

What's the difference between a fixed rate vs. ARM mortgage?

2008-01-08T15:09:00Z

There are two basic types of mortgages: fixed rate and adjustable rate. Fixed rate mortgages have interest rates that stay the same throughout the loan's life

(usually 15 to 30 years).

Adjustable rate mortgages (ARMs for short) have interest rates that vary over the course of the loan. Sometimes the rate varies every six to 12 months, and sometimes it varies every month. Usually, your ARM's interest rate will be tied to an economic index, such as the going mortgage rate. When rates are high, your rate will be high (not good). When they're low, yours will be low (very good).

There is one other type of loan: hybrid mortgages. These begin as fixed rate loans (for up to 10 years), then convert to ARMs.

If you're buying a home when interest rates are considered "historically low," it may be wise to choose a fixed rate mortgage. If interest rates are high and you think they will decline, you may want an adjustable rate mortgage. Of course, it's not that simple. Check out these websites before making the big decision: QuickenLoans.com; MortgageMart.com; Mortgage101.com; and IrwinMortgage.com.

Do I need to get inspection?

2007-12-24T11:02:00Z

Before you can get a mortgage, the bank will need to see that your house passed inspection. This means that you won’t be borrowing $30K more to fix plumbing damage that you didn’t know about. Basically, it puts everything on the table, so there are no surprises.

Look for a company that can do both the structural inspection as well as a pest test -- those nasty termites can do a number on your walls -- and the bank needs to know that you don’t have bugs feeding on your beams.

If your potential home fails inspection, you will need to go back to the drawing board. Your choices will be to back out of the house (you can do this if you put down a $1000 option fee) or to renegotiate with the seller. If the seller agrees to fix the damage, you will need to order a second inspection. If the seller does not agree to fix the damage, you can try to negotiate a lower rate of sale, since you will be fixing it yourselves.

Once you pass inspection, get a report and keep it with your files needed for the mortgage. Congrats, you are on your way to being a home owner!

Will bad credit keep me from getting a loan?

2007-12-03T13:21:00Z

Not necessarily. If rocky credit has turned you into the most unpopular loan-seeker on the block, think about applying for the loan under your spouse's name only (assuming his or her credit is in better shape then yours). It's not ideal, because with just one salary involved, you'll have less-attractive loan options with higher interest rates. But don't despair: When you've finally whipped your own credit into shape, you can add your name to the paperwork later.

What fees are included in the closing costs?

2007-11-26T16:58:00Z

It depends which side of the table you’re sitting on. If you’re a buyer, you’ll get a list of your expected closing costs when you first sign up for your mortgage as part of what’s called your good faith estimate. But you won’t really be able to know the exact dollar amounts until the end of the process, because many of the costs are based on percentages. Additionally, some things on the list won’t apply to your purchase because of your state or your type of property. In general, though, you can expect your total closing costs to add up to about 1 to 4% of the purchase price, and that’s above the down payment.

The major players your dollars are going toward are your lawyer, the bank, the title company and the government. Your lawyer will likely charge you a flat fee, but may itemize for document production, couriers and postage. The bank will include its mortgage application fee and appraisal charge, which you probably paid well before the closing, and also fees for documents, underwriting and all the costs associated with the mortgage. The title company will have a hefty insurance fee. And the government will put in for recording fees and other taxes. (Okay, breathe.)

If you’re a seller, your major cost will be paid to your real estate broker, who will likely get 3 to 6% as a fee. Your next biggest check will go to the government, which will want a transfer tax of 1 to 2%, depending on the state. Then you will have lawyer fees, miscellaneous bank fees and document processing fees. Altogether, these charges could add up to anther 2 to 7%. So when you calculate the profit you’re going to make, be sure to subtract out at least 10% for the cost of doing business.

And if you’re buying a new home at the same time you’re selling the old one, prepare yourself for a double whammy (sorry!). There’s nothing you can do to help being charged on both ends of the equation. But hey, look at it this way: You’re unloading your old digs to transition into your dream house, which is worth every penny.

What are the pros and cons of new home developments?

2007-11-19T10:56:00Z

When you’re deciding what type of home you want to buy, it can be appealing to bypass older homes and apartments and go for a brand-spanking new place. Buying a new house or apartment from a developer definitely has some upsides. For one, if you can get into the process early enough, you can get mucho customization (read: bells and whistles like wine-fridges and custom sinks) but every detail you specify may cost you extra. Another plus: new construction adheres to the latest safety standards and uses the most technologically advanced materials.

However, the downside is that you may wind up with a cookie-cutter style or a problem with durability (think sheet rock instead of solid plaster walls -- which is why they came up with the saying “they don’t make them like they used to.” There’s a reason that original details like carved banisters in an old house raise the selling price, because new ones -- chic as they may be -- can’t compete.

Building your own home can be an exhilarating experience as well, and could possibly turn out to be less expensive than buying an existing house, depending on the housing market in your area. If you’re intrepid enough, you can purchase an empty lot at a low price and build a big property on it, which will add a lot of value. You can build exactly the house you want, customized in every way possible. But this is not a task for the uninitiated. You have to be very careful about hiring a contractor, and you have to keep excellent track of all the work going on in your new place, because there are millions of ways for costs to add up and for major mistakes to happen.

What’s the deal with foreclosures? Is buying a home at auction a good idea or is it too good to be true?

2007-11-12T16:55:00Z

If a homeowner runs out of money, someone always comes running, either the bank holding the mortgage or the local tax assessor wanting payment. Somebody else’s bad news could be your bargain if you know how to work the system. And there are plenty of foreclosure businesses out that there purport to help you through the process if you’re a novice.

But buyer beware: Purchasing a house this way is so hard that usually only real estate professionals make money on the deals. The complicated part is that after a bank or the government goes through legal proceedings to take over the deed to a house, the foreclosed property goes up for auction and these auctions have rules. For one thing, you have to put down the full purchase price in cash on the spot, and you may not be able to inspect what you’re buying. If you don’t have the stomach for all of that, you can try to find out information about properties before they go through the formal foreclosure proceedings. Then you can try to negotiate a sale while the owner still has rights to the place and work out a deal to your advantage.