FAQs

How do you choose between buying and renting?

Home ownership offers tax benefits as well as the freedom to make decisions about your home. An advantage of renting is not worrying about maintenance and other financial obligations associated with owning property.

There also are a number of economic considerations. Unlike renters, home owners who secure a fixed-rate loan can lock in their monthly housing costs and make prudent investment plans knowing these expenses will not increase substantially.
Home ownership is a highly leveraged investment that can yield substantial profit on a nominal front-end investment. However, such returns depend on home-price appreciation.

"For some people, owning a home is a great feeling," writes Mitchell A. Levy in his book, "Home Ownership: The American Myth," Myth Breakers Press, Cupertino, Calif.; 1993.

"It does, however, have a price. Besides the maintenance headache, the amount of after-tax money paid to the lender is usually greater than the amount of money otherwise paid in rent," Levy concludes.

As for evaluating the risk associated with home ownership, David T. Schumacher and Erik Page Bucy write in their book "The Buy & Hold Real Estate Strategy," John Wiley & Sons, New York; 1992, that "good property located in growth areas should be regarded as an investment as opposed to a speculation or gamble."
The authors recommend that prospective buyers spend a few months investigating a community. Many people make the mistake of buying in the wrong area.

"Just because certain properties are high-priced doesn't necessarily mean they have some inherent advantage," the authors write. "One property may cost more than another today, but will it still be worth more down the line?"

How much I can borrow?

The amount that you are able borrow will usually depend on two things - your annual disposable income and the amount that your chosen lender is prepared to lend in relation to that income. As a rule of thumb most lenders will currently lend a maximum of 3.25 times the first income plus one times the second income. As an alternative they will usually be prepared to add the two incomes together and multiply the combined figure by 2.5 times if this gives a higher figure than the first method. 

What are the two most important factors when selling a home?

Price and condition are the two most important factors in selling a home, even in a down market. The first step is to price your home correctly. Use comparative sales information from your agent, or pay for a professional appraiser (usually $200 to $300), to objectively evaluate your home's worth. Second, go through the house and repair any obvious cosmetic defects that could deter a buyer.
In a down market, you may have to consider lowering your price and/or making a major repair, such as replacing the roof, in order to lure a buyer. Also, make sure that your home is getting the exposure it deserves through open houses, broker open houses, advertising, good signage and a listing on the local multiple listing service or online listings provider.

If this isn't happening, take it up with your agent or agent's broker. If you are still not satisfied you are getting the service you need, you may have to switch agents.

Is a low offer a good idea?

While your low offer in a normal market might be rejected immediately, in a buyer's market a motivated seller will either accept or make a counteroffer.
Full-price offers or above are more likely to be accepted by the seller. But there are other considerations involved:

> Is the offer contingent upon anything, such as the sale of the buyer's current house? If so, a low offer, even at full price, may not be as attractive as an offer without that condition.

> Is the offer made on the house as is, or does the buyer want the seller to make some repairs or lower the price instead?

> Is the offer all cash, meaning the buyer has waived the financing contingency? If so, then an offer at less than the asking price may be more attractive to the seller than a full-price offer with a financing contingency.

When is the best time to buy?

Here are some frequently cited reasons for buying a house:
> You need a tax break. The mortgage interest deduction can make home ownership very appealing.
> You are not counting on price appreciation in the short term.
> You can afford the monthly payments.
> You plan to stay in the house long enough for the appreciation to cover your transaction costs. The costs of buying and selling a home include real estate commissions, lender fees and closing costs that can amount to more than 10 percent of the sales price.
> You prefer to be an owner rather than a renter.
> You can handle the maintenance expenses and headaches.
> You are not greatly concerned by dips in home values.