House Hunting

It’s that annual rite of spring, when families cramped for space decide it’s time to expand their house, while others, stung perhaps by winter, illness, or layoff, decide to “rachet down” a room or two or start over elsewhere.

Buyers are starting to catch a break after years of soaring real-estate prices. Homes in the Lexington and Louisville markets are “undervalued” when compared with their peers elsewhere by a Smart Money magazine survey.

While interest rates have climbed slowly but doggedly, would-be buyers continue their search for the perfect place. Many lenders, meanwhile, have introduced a new crop of loans, including 40-year terms and interest-only features.

New home or old?
Want a new house or an older one? Consider these factors while looking.

New houses usually have more amenities, updated technology, and modern floor plans, but may lack landscaping and decorative finishes.

Older houses often have mature landscaping, and you may get more square footage for your money, depending on the location.The quality of moldings, doors, windows, woodwork, and even walls in an older home can’t be duplicated in new construction, where some builders use hollow doors and cheap windows.

An older house can require more maintenance than a new one, and some materials in older homes—such as lead-based paint—may present health hazards.

Meanwhile, sellers in some locations are being advised by their real-estate agents to cut prices and spruce up the property with fresh paint or new plantings out front to stand out from the crowd.

Tips for buyers and sellers
Sellers can also do other things, such as offering the agent a higher fee if the property is under agreement by a certain date or offering to pay the buyer’s closing costs, one month’s mortgage payment, or even the heating bill, says Pat Rioux, broker-owner of Listforless.com, a flat-fee multiple-listing placement service.

There are steps that would-be home buyers—especially first-time purchasers—can take.

Before making a commitment, make certain you’re credit-worthy to a lender by paying down debt and paying bills on time. Figure on a house payment of no more than 33 percent of your monthly gross income; total debt payments shouldn’t exceed 38 percent of your pay.

Land prices
Farmland has been participating in the real-estate boom, but land prices haven’t surged as much as urban housing.

In many cases, the rural boom is being fueled by investors seeking “hard assets” like real estate, timber, and commodities—in part because their returns from stocks and U.S. Treasury bonds have declined.

Will Rogers said it best: “Land, they aren’t making any more of it.”

Which mortgage is best?
An adjustable-rate mortgage may get you a house, but can you afford the payments if interest rates rise? A better choice could be a 30-year fixed-rate mortgage with interest-only payments for a set number of years, after which monthly payments rise.

Borrowers who expect to move in the next five to 10 years might consider an adjustable-rate mortgage that is fixed for the first five, seven, or 10 years, suggests a financial analyst at Bankrate.com. Loans that adjust more frequently make sense only for a small group of borrowers who expect their income to grow faster than their mortgage payments in the next few years, he adds.

Borrowers might consider paying more on the principal of their conventional mortgage if they can afford it, according to Ameriquest Mortgage Co. Here’s why: If you borrow $200,000 at 6 percent over 30 years, the monthly cost for principal and interest will be $1,199.10. Pay an extra $100 a month on principal and the loan will be paid off in less than 25 years at a savings of $49,091 in loan costs.

Next month: Decided to keep the old house? Tips for home improvements that really pay off.

ONLINE HELP WITH LENDERS

There’s plenty of online help available if you have a problem with a lender.

www.nationalfairhousing.org
The Fair Housing Alliance lobbies for equal opportunity in real estate, mortgage lending, and homeowners’ insurance.

www.nclr.org
National Council of LaRaza was established to reduce poverty and discrimination and improve life opportunities for Hispanic Americans.

www.ftc.gov
Federal Trade Commission provides consumers with information regarding credit or home equity scams.