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3 rules for home buyers | Column
Rule 1: You can’t time the bottom
Face it, the house you buy today will more than likely be worth less next year. That could get you thinking about trying to time the bottom. Resist. It’s harder to do than you think, and this is the best buyers have had it in two decades, with inventories up and mortgage rates low.
Pace yourself, find the perfect place and drive a hard bargain. Ignore the seller’s asking price and bid 10 percent below what comparable homes are selling for. If the seller balks, move on. Remember that if you’re trading up, your home could sit. So sell before you buy.
Rule 2: One reason to buy now — mortgage rates
Homes are plentiful and will remain so, but financing will be getting more expensive. True, the Federal Reserve has slashed interest rates, but fixed mortgages don’t directly follow the Fed. They reflect the bond market’s expectations about inflation, which remains a concern. The 30-year, now at 6.1 percent, will likely reach mid-6 percent by December and 7 percent in 2009, says Celia Chen of Moody’s Economy.com.
That means there could be a penalty for waiting to buy even if prices fall more. Today a $250,000 loan would set you back $1,500 a month. At 7 percent, a $1,500 payment gets you only a $225,000 mortgage. As for variable-rate loans, the spread between conforming ARMs and fixed loans is too narrow to do you much good.
Rule 3: Don’t buy cheap, buy good schools
By now you’ve heard from somebody who knows somebody who got a great deal on a foreclosed property. But when you buy a house, you’re also buying into a neighborhood. And foreclosures tend to be bunched in areas where residents and speculators alike took out exotic mortgages to get into homes they subsequently found they couldn’t afford. That’s not a recipe for stability. Prices and quality of life could both decline further.
Similarly, avoid developments that popped up in the past few years. They too likely have a lot of owners with risky loans and little equity, says Mike Larson of Weiss Research. Instead, go for areas with highly rated schools.
They generally fare better during downturns, and that pattern is holding today, according to a recent study by real estate site Trulia.com.