Loans-Help | Pick Your Home Type

You've filled out your wish list and figured out how much you can afford. Now you're ready to grab your car keys, your checkbook, and... wait! Let's not jump the gun. Before you even think about going shopping for your home there are a few more things to consider. Are you excited about that new home community that just popped up down the street? Or are you set on the castle after all? Or maybe you're just looking for a good deal.

The Worst House on the Best Block

You may have heard this before: It's always better to buy the worst house on the best block than the best house on the worst block. Here's an extreme example. Say you live in a 2500-square-foot colonial that's only two years old. You happen to look out your breakfast nook window one day and find that the lot next door is being cleared. "That's nice," you say -- until you find out that your neighbor's new house is only as big as your living room. What does that mean to you? It means your property value is going to fall. Why? Because the value placed on your house also takes into account the homes surrounding your property.

What does this say about your new neighbor? She's one smart cookie. Her property value will increase because she's living next door to your beautiful abode. This doesn't mean you can't despise her. Go ahead. We'll understand.

Once you've transcended your petty emotions, though, you should know that many communities have covenants to prevent such an event from happening. But you can apply this rule to any neighborhood. The least valuable home benefits from the more expensive homes and the most valuable home is harmed by the lower valued homes. Keep this in mind while you are shopping.

Now, on to our different home types.

New Home -- One of the main advantages to a new home is... it's new! New homes have new appliances, new plumbing, new roofs, new boilers, new electrical systems, etc. You get the point. You shouldn't expect to outlay money for repair costs anytime soon, and most new homes come with five- or 10-year warranties. Another advantage is the design process. If you sign a new home contract early enough in the building process, you can make some, if not all, of the decisions about the interior and exterior design.

One important thing to note about buying a new home is that most new home communities welcome real estate agents. So here you should have a strong buyer's agent. It's important that your interests are represented; don't count on Joe Builder and his agent to represent you. That friendly agent at Happy Acres legally represents Joe Builder and not you. As we're fond of saying in Fooldom, "Do your own research." In this case, find out all you can about the builder.

The grand model unit that Joe Agent shows you -- while Bach suites lull you into a delighted reverie from the in-wall speakers -- is sure to have a luxury bath, a finished basement, an upgraded kitchen, and designer wallpaper and floor coverings. It's important for you to know that your new home will likely not have all these options unless you pay for them. You could spend tens of thousands of dollars more than the base price for those goodies. Does it sound suspiciously like buying a car? It is, in this regard anyhow. Sit down and decide which options you must have and which options you could live without. Also keep in mind that you can always make certain improvements after the house is built.

Also, everything is negotiable. As with all home purchases, don't hesitate to ask your agent to negotiate on price, options, and closing costs. If you're looking to make a deal on your new home, you're in a strong position if the builder has a completed house without a buyer. That vacant house isn't making a dime for him and he's likely to want to unload it as quickly as possible. If you're not in a hurry to move in, some builders will actually sell you their model and then lease it back from you. Usually you'll get a great deal on a well-optioned and designed house and a guaranteed return on your investment.

Resale Home -- In some parts of the country it's downright impossible to find a new home. An older home or a resale is a house that's had at least one owner. When shopping for an older home, remember it's not going to be perfect. There are likely to be repairs or alterations that you're going to want to make prior to occupancy. It's often best that you consider this in your offer rather than ask the owners to fix them.
It's a good idea to purchase a warranty for a resale home. The cost is usually only a few hundred dollars and your agent can help you choose the one that's best for you. As an added incentive, many home sellers purchase home warranties. These cover the home while the owner is trying to sell it and for a certain period of time after it's sold. Also, definitely pay the few hundred dollars to have a home inspection. It's better to find out the roof needs to be repaired now, rather than two days after you close and the first storm hits.

Fixer-Upper -- Buying a fixer-upper is a good way to own a home that you ordinarily wouldn't be able to afford. If you're a handyman or a handywoman, or you know someone who is, this could be the home for you. The real estate industry has placed an annoying little word on the difference between the improved home's value and the price you paid plus the repairs -- sweat equity. For instance, if the improved house is worth $150,000 and you paid $130,000 for the house and $10,000 in repairs, your sweat equity (arghhh) is $10,000. Again, you should definitely have a home inspection with this house, and have a contractor give you an estimate on repair costs. Also, ask your lender about special loans with which you can build the repair costs into your mortgage.

A fixer-upper may not be for you, especially if you have small children. Keep in mind that there will be various disruptions, with rooms being closed off, different teams of workmen trooping in and out of the place, the kitchen potentially becoming unusable for a period of time, and so on. And that assumes that all the work goes as is planned, and on time. Weigh the potential savings against the potential disruption of your home life.

Foreclosure -- Another option in finding a better price is a foreclosure home. This is one in which the previous owner could not make the payments, so the mortgage company or note holder has taken possession of the house.
Foreclosures come in all shapes, sizes, and states of disrepair. Some look as though they're about to be condemned; others are in pristine condition. Any home can be foreclosed on, so don't be surprised to find foreclosures worth a million dollars or more. Look for many incentives when buying foreclosed homes -- decreased prices, closing cost assistance, quick closing incentives, low down payments, and special loan programs, just to name a few. If you're interested in this type of home, find a real estate agent who specializes in foreclosures and knows the tricks of the trade.
Now you have a pretty good idea about how much you can afford and what kind of home you want. You're not quite there, though, but you're in the neighborhood.