Thinking About Buying A New Home
Look beyond low mortgage rates and affordable payments to insure long term financial stability.
You have saved up a sizeable down payment, your job seems relatively secure, and 30 year mortgage rates have dropped to the levels forecast in this column: just below 4.5%. What more could you ask for? Maybe its time to buy that new home.
Having had some financial success buying and selling single family homes over the years (both as personal residences and as income properties), I recently decided that the mortgage market and the real estate market currently present buyers some of the most favorable conditions in decades. Responding to those conditions, I set out to look at some of the properties currently offered in our local market. It did not take me too long to realize that the current real estate market presents challenges that many have overlooked. In an effort to make your home buying experience a well planned financial transaction, I want to share what I have learned.
The bursting of the real estate bubble and the resultant rash of foreclosures, bank repossessions, and deeply discounted housing prices have masked some of the problems facing those that are in a position to buy. Logically, if someone has been unable to make their mortgage payment for some months, missed the semi annual installment on real estate taxes, and is several months behind on utility bills; chances are they have done little or nothing to maintain the property during their troubled times. Cosmetic touches such as a new coat of paint in the bedrooms and bathrooms, some new landscaping, and even new carpeting in the main living areas are inexpensive ways to excite prospective buyers and often highly recommended by real estate agents. However, those accouterments may distract from some real problems.
Most people have retained the services of home inspectors prior to closing on the purchase of a new home, with the results of the inspection possibly placing a contingency on the purchase. However most of the home inspections that I have witnessed are not sufficient to uncover potentially big problems, in my opinion. The main problem areas tend to be: old roofs and gutters; cracked and missing mortar on brick homes (tuck pointing); heating, ventilation, and air conditioning (HVAC) equipment in need of replacement; inadequate electrical service for both the size of the house and the consumption experience of your family; and faulty or aged plumbing.
Roofs that have not been torn off down to the bare wood in the last 10 to 15 years, to reveal rotting or otherwise damaged boards, will likely need to be replaced within 5 years. Broken, leaky or missing gutters and downspouts may have caused concealed water damage possibly visible on inside walls and ceilings. Significant numbers of gaps between the bricks on masonry homes (where mortar used to be) most assuredly has facilitated water seepage between the inside walls and outside walls; tuck pointing could be a significant expense. HVAC equipment which has not been replaced for more than 10 years will need to be replaced within the first 5 years of your ownership. Anything less than a 200 amp electrical service fewer than 20 years old will not well serve todays needs for computers, TVs, major appliances and standard lighting requirements all simultaneously. Plumbing which shows rust or corrosion at visible pipe joints could be a problem. Also, if it does not support quick flowing drains and support adequate water pressure when the wash machine, the dishwasher, and one or two showers are running at the same time, it may need some major attention.
The game has changed; many people have been unable to maintain their homes even at minimal levels. In the long run, it may be worth every penny of the cost to retain a specialist for each type of inspection, as opposed to a home inspector without the experience required to fully evaluate each of the potential problem areas. Request or require of the seller dated receipts for all claimed major repairs or maintenance, especially for roofs and HVAC work. On a 2,000 square foot home a simple asphalt shingle roof could run $8,000 or more, and replacing the HVAC system about the same. Looking beyond the cosmetic touches and an investment in expert opinions are two tools which will help to insure your financial security when buying a home.
The views and opinions expressed herein are solely those of the author and do not necessarily reflect those of Baxter Credit Union, its Board of Directors, or its employees. The author is responsible for the content. Readers should consult with, and seek professional advice from their own attorneys, accountants, and financial advisors with respect to their individual financial needs and circumstances.
We welcome your feedback and ideas regarding this service. To submit a comment or idea for a future article, please email us at email@example.com