QUESTION: My wife and I have been looking at least six months for a home to buy. She likes the brand-new homes out in the boondocks, but I like the older, established homes in neighborhoods where there are trees.
Several of our friends have purchased new homes and they tell us all the problems they encountered. But they all love living in a new house. As an investment, are new homes or older homes better investments?
ANSWER: As a general rule, older homes are better bargains. The cost of new homes is inflated due to all the extra expenses, such as governmental impact fees and the higher price of new construction, compared to the lower building costs in the past. However, home builders emphasize that the new homes have all the features that home buyers want.
I buy older homes for investment because I can negotiate with the sellers. Negotiating with home builders on price is almost impossible, but they will negotiate on the features to be included without extra charge.
Another reason I like to buy older homes is that I prefer buying in an established neighborhood. After acquisition, I upgrade the house to modern standards, often at considerable expense, but the total price is far less than a brand-new home would cost.
The argument for buying new or resale homes will never be settled. Only by evaluating the pros and cons of each can you decide which is best for your situation.
Try Home Equity Loan Instead of Refinancing
Q: I have a 2-year-old, fixed-rate, 30-year mortgage at 10.818%. Should I refinance?
A: No. The general rule is, don't refinance your mortgage unless you can reduce your interest rate at least 2% and repay refinancing costs from reduced payments within 36 months. Be happy. You have a great loan.
If you have sufficient equity and need some cash, rather than disturbing your attractive loan, consider a home-equity credit line. The interest on such a loan up to $100,000 is tax-deductible on your federal tax returns. Please consult your tax adviser for full details.
Lease With Option Can Help Make Sale
Q: Many thanks for suggesting to another reader that she offer her difficult-to-sell house on a lease with option to purchase. I had the same problem, as my condo had not sold in over four months. When I told my realty agent to follow your lease-option ideas the agent fought me all the way.
She said it would never work. But the first weekend she ran your favorite ad line in big bold type: "$5,000 moves you in" and there were over 20 people at the Sunday open house. A nice couple paid the $5,000 option money, accepted the $1,000 per month rent without question although it is $200 higher than my old tenant was paying, and there was no haggling over the option price.
I gave the agent $2,000 of her sales commission now with the balance due when the couple exercises the option. As I am giving the tenants a $500 per month rent credit, I am pretty sure they will buy, aren't you?
A: Yes. Lease-options are an excellent win-win technique for hard-to-sell properties. I don't know why realty agents are so reluctant to use them if the regular sales listing method doesn't work.
Original Borrower Liable for VA Loan
Q: A few years ago we sold our home, and the buyer took over our VA mortgage payments. As home prices had declined in our town, we were very pleased to get out because jobs were hard to find there. About two months ago we received a letter from our old lender, a local bank, notifying us they are foreclosing on our former residence and we will be liable for any loss.
When I phoned the banker he said home prices had not improved, our buyer had quit making payments but is still living in the house and there isn't much chance of a sale for the amount of the mortgage. Is the banker telling the truth? Can the VA can come after us for any loss?
A: Yes. Even in states with anti-deficiency laws, the VA can and does go after the original VA borrower for any loss the VA suffers, even if the loss occurred after the original borrower sold the home.
Mortgage borrowers who allow their buyers to assume existing mortgages should be sure to obtain a written release of liability. Had you done this, you wouldn't be facing a possible loss on a house you no longer own.
Unfortunately, there isn't much you can do now to prevent a loss because you have no right to repossess the house. I suggest you consult a real estate attorney in the town where the bank is located to see if some settlement can be reached.
Buy Now; You Can Always Refinance
Q: Do you think we should wait to buy a home until interest rates come down? I ask because my wife and I are debating whether to buy a house now or perhaps wait a few months. Your advice, please.
A: My interest-rate crystal ball is very foggy today. But if mortgage interest rates drop, more prospective home buyers will be able to buy homes and increased buyer demand can drive home prices up.