If you are looking at purchasing a new home or other real property, there are many things you should consider as you move toward making a deal. This article addresses some of the most common issues faced by home buyers.
Most home buyers will finance their home through a mortgage. Depending upon where you live and the seller's situation, you may also be able to obtain financing through a "land contract." A land contract is a form of seller financing, and usually takes the form of a contract between the buyer and seller, calling for monthly payments of principal and interest analogous to those of a mortgage.
There are three basic types of mortgages:
Fixed rate mortgages, where the interest rate remains the same for the duration of the mortgage;
Adjustable rate mortgages, where, after an initial period, the interest rate will be periodically adjusted, depending upon current market interest rates; and
Balloon mortgages, which are similar to fixed rate mortgages, but in which the entire balance of the mortgage becomes due after a fixed number of years, at which time the mortgagor must refinance or pay off the balance.
The type of mortgage you pick can have a significant effect on the interest rate that your lender is willing to offer, but may buyers like the security of a fixed rate mortgage, and the knowledge that their interest rates can't rise during the life of their loan.
City dwellers are often surprised when they buy a home in the country, learning hard lessons in such matters as the water pressure in their well, deterioration of septic fields, environmental contamination caused by leakage from fuel oil tanks or illegal dumping, and damage to "drain tiles" around the foundation of their home. They also may learn that, under their state's "right to farm" act, they are exposed to noise, pesticides, and odors from neighboring farms.
Be very careful to make sure that your new home will be livable - and make sure that you have any fuel storage tanks checked for leakage. The environmental clean-up costs from a leaking fuel storage tank or even a small illegal dump can be steep. If you will be near any farm operations, be cautious about purchasing during the winter, when activities and odors are reduced. You may find that a nearby cattle feedlot produces a noxious odor, and a swarm of flies, during the summer, but that those signs disappear in the winter. If you feel that you must buy before you can fully check out the situation, obtain guarantees from the seller.
While you may be able to have a simple home inspection for your city house, you may find that you need additional inspectors for your country home - such as an inspector for the septic field, an inspector for the well, and an inspector for any fuel storage tanks or potential environmental problems. Be cautious about relying upon the representations of inspectors hired by the seller or the seller's real estate agent, as you may have no recourse if those representations are incorrect.
There is a degree of risk in buying any home - new or used. Some builders use surprisingly sloppy building techniques in order to maximize their profits. Some new homes are built with new materials - new types of plumbing pipe or exterior siding, for example, which may prove to be defective over time. Before you buy a new home, make sure that you are dealing with a reputable, quality builder.
Homeowners are eligible for a mortgage interest deduction on their federal tax returns. Additionally, most homeowners may exclude a significant amount of appreciation in the value of their homes from capital gains taxation