- The Washington Times - Thursday, September 30, 2010

A silver lining of the recession is that consumers are becoming more focused on ways to save money, and today’s savvy homebuyers are no exception. By shopping around for property and a good mortgage program, homebuyers often can save hundreds or thousands of dollars while still investing in a home they love.

“The number one concern of every homebuyer, everywhere, is that they do not want to spend too much for a home purchase,” says Deb Pestronk, a Realtor with Coldwell Banker Residential Brokerage in Reston, Va.

Realtor Morgan Knull, with Re/Max Gateway in the District, says the biggest place to save money is on the home purchase itself.

“The real savings occur when consumers pick the right property at the right price,” Mr. Knull says. “That is why investors are so ruthless about not going above a certain price range, because they know they will make money only if they spend less upfront.”

Once homebuyers have established a comfortable housing budget and obtained a preapproval for a loan from a lender, they can narrow their priorities and try one of several strategies to make sure their purchase is affordable.

  • Look at different property types.

“Buyers may want to broaden their range, perhaps looking at a smaller, older home and a town home and a condominium to compare values,” Mr. Knull says. “Condominiums can sometimes be more costly because of the condominium fee, so the payments could be comparable to a town home or a small single-family home.”

  • Look for homes that have been on the market a long time.

Mr. Knull says buyers looking for a great deal should look for a property that has been on the market for 90 days or longer.

“Either the house was overpriced, or it was not in good condition, but sometimes there is nothing wrong with the property and it was simply a marketing problem,” Mr. Knull says. “In many cases, these sellers are very motivated and will either have dropped the price or will accept a lower offer.”

  • Look at different neighborhoods.

Sometimes a similar home can be priced several thousand dollars less simply because it is in another town or farther from public transportation or major employment centers.

Valerie Huffman, a regional vice president and manager of the Bethesda-Chevy Chase office of Weichert Realtors, says buyers should think about resale value when considering less expensive neighborhoods or more distant communities.

“If all the homes in a particular neighborhood are short sales or have dropped a lot in value, it may not be a good investment because it will take significantly longer for those homes to come back up in price,” Ms. Huffman says. “A good buyer’s agent can analyze these trends to show you where the values can be found.”

Ms. Huffman also says bargain hunters should beware of the costs of a long commute both financially and emotionally.

“While saving money is important, buyers also need to look at the bigger issue of their quality of life,” Ms. Huffman says.

Ms. Pestronk says each potential buyer needs to create a list of the three or four items that are the most important to him, such as living in a particular community or owning a single-family home.

“Figure out why you want to buy in a particular area, such as the recreational amenities or the schools,” Ms. Pestronk says. “For instance, if you love tennis like I do and want to live in Reston, where there are plenty of courts, you may need to move into a smaller home or an older home than you would like. Some people are more willing to change communities in order to get the property type they want, while others want the community and will compromise on the home. It is all up to their priorities.”

A common strategy some people consider is to purchase an “as-is” home and make home improvements, but this may not always result in a more affordable home.

“Buying an ‘as-is’ home depends a lot on whether the buyers can live in the home while it is being renovated and whether they have the cash to pay for those improvements,” Ms. Huffman says. “In this market, you need to be very careful about how much cash you invest to make sure you get that back in resale value.”

Mr. Knull says buyers with patience sometimes can find good value in a short sale or a foreclosure, but property needs to be evaluated on a case-by-case basis.

“Buyers need to be very careful to have a home inspection and get a good estimate of what the cost will be to renovate the property,” Mr. Knull says. “In this credit environment, it can be difficult to get financing for a property that needs a lot of improvement.”

FHA 203k loans are available with certain restrictions for homebuyers who want to make immediate home improvements.

“A better opportunity might be a slightly older home with a working kitchen but maybe Formica counters instead of granite, so that it is not updated enough to attract a lot of other buyers, but not distressed enough to attract investors,” Mr. Knull says.

“The best thing any buyer can do to save money is to hire a good buyer’s agent who will help them negotiate a good price and make sure they meet all the contract’s contingencies and time frames,” Ms. Huffman says. “Every step a buyer’s agent takes can cost the buyer money or save money depending on how it’s done.”

Ms. Pestronk says a good agent who knows his or her market can point out properties that may statistically be a better buy than others.

“An agent can tell you where prices fell the most and where they are still falling, but buyers should be aware that they may not recoup their value in some places,” Ms. Pestronk says.

Once a property has been identified, Mr. Knull says the buyer’s agent can negotiate not only on the price, but also on repairs and seller contributions to save the buyer money, such as paying closing costs and transfer taxes.

Ms. Pestronk says when buyers focus too tightly on price, they may not realize the biggest savings right now come from low interest rates.

“Great credit matters most because only people with high credit scores can qualify for the lowest interest rates,” Ms. Pestronk says.

Buyers should work closely with a lender during the months leading up to a loan closing to make sure they are taking steps to improve their credit score.

“People are sometimes waiting for home prices to drop more, and they don’t realize that an interest-rate increase could hurt them more,” Ms. Huffman says. “For example, if you are buying a $350,000 home at 4.5 percent interest with a down payment of 3.5 percent, your monthly payments will be about $1,711. If the home price drops by 5 percent, that sounds great, but if interest rates go up at the same time by 1 percent, your monthly payment will be $110 higher.”

Mr. Knull recommends that buyers shop around for loans with the lowest interest rates, but says buyers also should compare lender fees and underwriting fees.

“While most buyers now are using FHA loans because of the low down payment, we are beginning to see some conventional financing again with down payment requirements of just 5 percent,” Mr. Knull says. “Those loans might be a better value depending on the mortgage insurance costs associated with each loan.”

Sarah Pichardo, a senior loan officer with George Mason Mortgage in Fairfax, Va., says buyers can save money by making sure they get into the best possible loan program from the beginning.

“Taking the time to sit with a great lender and pulling credit to determine that the credit score is in the best possible position, discussing assets and down payment options, and understanding tax returns, loan programs and seller help options can be the most important thing a borrower can do,” Mrs. Pichardo says.

“A lot of borrowers do not realize that anyone can use the FHA program. It is not restricted to first-time buyers or by income, and this can be a great way for people to buy a home with a minimal down payment and generous underwriting guidelines.”

And while the federal homebuyer tax credit has come and gone, there are programs on the state and local level that can provide low-cost loans and down-payment or closing-cost assistance to buyers who meet certain qualifications. Buyers can ask their Realtor and lender for information on these programs as well as go to the state and local government websites in the jurisdiction where they intend to buy.

In addition, some employers and unions offer benefits to members, such as down-payment assistance. Some programs are limited to first-time buyers or restricted by income or home price qualifications.

For example, Mrs. Pichardo says, the Virginia Housing Development Authority will allow up to 101.5 percent financing, providing funds for an FHA loan, the down payment and possibly funds toward closing costs for first-time buyers.

Mrs. Pichardo says FHA rules also allow the entire down payment and closing costs to come from gift funds from family members. Conventional lenders also allow gift money, but if the borrower is putting down less than 20 percent as a down payment, the borrower must demonstrate that 5 percent of the money is coming from their own funds.

“When buyers ask for closing-cost assistance from the sellers, they need to make sure they receive the full amount at settlement,” Ms. Huffman says. “If, for instance, they negotiated $5,000 in closing-cost help but the closing costs only came to $4,200, they need to make sure the other $800 is used to pay other fees rather than returned to the seller.”

“Buyers might be able to save a little bit by comparing settlement company costs, and many companies are willing to negotiate and match any other company’s lower fees,” Mr. Knull says.

“Another way to save is to ask the seller for the name of their title insurance company. In many cases, if the seller has purchased the home within the past 10 years, the title company will give the buyers a reissue rate for the title insurance rather than a new rate. This could save the buyers a few hundred dollars.”

Whether buyers save thousands or hundreds on their home purchase, taking the time to work with a reliable, experienced real estate agent and lender can make a big difference in the bottom line.

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