Options for Buyers Who Cannot Afford Dream Homes
February 27, 2008
Question: Allison, I cannot qualify for a loan that would put me into the type of home that I want. What are my options?Answer: House-hunters who find the home of their dreams is financially out of reach have several options. They can choose a property in a lower price range; opt for adjustable-rate financing, to more easily qualify for a mortgage; or simply put off buying until they can afford the house they want. Those who choose a less expensive home should make sure it will meet their needs for at least the next four to five years, especially when considering how costly it is to move. They should plan to stay put for more than a year or two; otherwise, they might not have enough money to trade up to a better home in the future, if the neighborhood they buy into is stable or depreciating.Question: I am considering buying a property for rental purposes. How do I determine value based on rental potential?Answer: Most people believe that buying a home in a tight market will guard against property depreciation; however, they fail to understand the connection between a home’s price and it’s potential to generate rental income, says Anderson Forecast economist Edward Leamer. Buyers should calculate the price/earnings (P/E) ratio to determine whether a home is overvalued, just as investors evaluate stock prices, he says. They can divide a home’s price by the annual rental income it could generate (after maintenance and management costs). An individual might purchase an overvalued home under the assumption that it will sell for even more later on. It may make more sense to rent if the P/E ratio surpasses historical levels. Prices can decline even when inventories are tight, agrees Economy.com chief economist Mark Zandi. But he insists that housing price bubbles aren’t expected to burst. Question: We vacation in Summit County frequently and have thought on and off about purchasing property here. Our only concern is living so far away from investment property. Do you have any comments? Answer: If you don’t live close to your investment property, finding good property management is one of the most important factors in your decision of where to purchase. You may choose to take an active role in some aspects of the management of your property if you so desire. At the same time, however, handling all of the details long-distance can be more time-consuming than it is worth.It is important when looking at investment condominiums to investigate the management procedures of the building. In most parts of the country, investment property becomes the primary residence of long-term tenants and is handled accordingly. The Summit County investment market is a unique situation in which property is rented by many different people for short term during the winter and summer seasons. Good condominium operation will be completely oriented to serving your specialized needs. There are many excellent property management companies in Summit county. Good management leaves you free to enjoy your property when you are here and will let you rest easy when you are back home. Question: I have been saving for a downpayment on my first home. How much money do I need to have in addition to the downpayment in order to proceed obtaining financing? Answer: In the calculation of how much you will need to purchase a home, be sure to add the down-payment and closing costs. You will also need to leave yourself with a financial cushion to cover incidental expenses.First, you will have to pay a moving company unless you have friends with strong backs to help you. You may also find that you will wish to do some work to your new property, such as painting, replacing carpet or refinishing floors. If you are moving into a larger space, you may find yourself making some major furniture purchases within a few months of closing.A financial cushion is important enough that some lenders require buyers to have an amount in the bank equivalent to two or three months mortgage payments. This is especially true for buyers who are putting less than 10 percent down. Your Realtor can give you some guidance. A lot depends upon your overall financial situation. If, for example, your mortgage is a relatively low percentage of your monthly income, you will be able to rebuild a comfortable amount of savings in a few months.Question: We have owned our Dillon condo for almost 15 years. It is definitely time to do some renovations. We don’t want to over-improve it for the market. Please advise. Answer: It is important to know how much your condominiums is worth, even if you don’t plan to sell it. This information will help assist you in developing an overall financial plan, including making sure that you maintain proper insurance coverage.If you are concerned about over-improving your property, knowing its value can help you make an informed decision about renovations that you may be considering.A Realtor can provide you with an analysis of your property’s value, including the recent sales prices of similar condominiums in the area. For answers to your real estate questions, call Allison at (970) 468-6800 or (800) 262-8442. Email Info@SummitRealEstate.com or visit their website at http://www.SummitRealEstate.com. Allison is a longtime local in Summit County. Summit Real Estate The Simson/Nenninger Team is located at the Dillon Ridge Marketplace. Allison’s longtime residency and years of real estate experience can help you make the most of any buying or selling situation. She’s a Certified Residential Specialist (CRS), the highest designation awarded to a Realtor in the residential sales field. Her philosophy is simple, whether buying or selling, she understands that the most important real estate transaction is yours.