Pros and Cons of Buying an Old House

Pros and cons of buying an old houseOne must be aware of the factors to look for when buying an old house, as it may result in a loss-making proposition. Here are few pros and cons of buying an old house.
Old homes leave buyers super-impressed with their charm, allure, and character. Also, the exclusivity attached to older homes is one feature which attracts many prospective buyers. However, there are certain pros and cons of buying an old house. As the community in which the old house is located is already established, there may not be any new zoning changes. Also, with old houses, you have the benefit of becoming a part of a close-knit and well-established neighborhood, which a new community may lack.

However, you may incur considerable expenses for repairs and refurbishment. Also, there may be certain health and safety concerns which may need your immediate attention. One may also find that there is little or no scope for renovation in an old house. Here are few advantages and disadvantages of buying an old house.

Pros

Architectural Details
Remember that old houses often have intricate woodwork which was crafted or carved out by carpenters manually, as no modern-day carpentry tools were available. Hence, the architectural details in such homes is often unique and irreplaceable. No two homes will be similar in their look and style, unlike new-age homes. If you are someone who thoroughly enjoys aesthetics and architecture, then old houses are definitely meant for you.

Cost-effective
Old houses are relatively cost-effective. This is because you can get more square footage area for a limited price than you would get in the same amount for a new home. It is often observed that old homes are bigger than the new ones, and one may end up getting a better bargain. You may also get a larger yard than a new home.

Return on Investment
Old homes have always enjoyed a good demand in the realty market. As the area is more and the construction sturdy, many people actually prefer to invest in an old home. It also leads to excellent growth of capital. You will be surprised to see how the price of an old home appreciates with time. Even if you put the house on the market, after a few years, you will still be able to get an excellent return on investment because of the rarity quotient.

Central Location
Nowadays, new houses may be located far away from schools, hospitals or supermarkets. Hence, you have to drive through bumper-to-bumper traffic to reach your house in the downtown. However, many old houses are centrally located, and are within walking distance from these vital places. Hence, buying an old house is a wise decision if you have school-going children or aged people in your family, who may require sudden medical attention.

Rich History
If you have bought a Georgian or Victorian home, it will have its own history to tell. The ambiance will simply leave your guests awestruck. Who knows, you may have an interesting story to share about the house. Not only this, but a rich heritage will also help you to gain better prices when you decide to sell the house.

Large Yards
Old houses often have bigger yards. You can utilize this additional space for having a gazebo or swimming pool. Needless to say, if you intend to undertake some creative landscaping, you will have ample space to experiment. Also, if you have pets, they can have enough space to move around.

Cons

Cost of Repairs and Refurbishments
In all probability, if the house is not maintained properly by the old owner, it will mean you will have to shell out more money for repairs and refurbishment. Especially, if your house is situated in a coastal an area, it can lead to rusting of pipes and plumbing. You may also have to check the roof for leakages. Apart from this, peeling color, non-working appliances and systems, etc., will add to the expenses.

Modification Limitations
In a new house, one can decorate the interiors as per his/her taste. However, you do not have this artistic liberty when it comes to an old house as the cabinet, windows, carpets, landscaping, etc., are all present already. If you are to make any drastic changes or undertake renovation, you will have to bear the additional cost.

Health and Safety Concerns
If you are buying an old home, you can be in for some really unpleasant surprises. There is no way to tell if the house is infested with rodents and pests. Also, one cannot determine for sure if the house is lead-/asbestos-/mercury-free. Also, it may not have a fire or burglar alarm, and you will have to install it separately. Also, it may so happen that the electrical wiring and insulation may have aged and is no longer functional. All these situations may pose health and safety hazards.

Root-cause of the Problem
In all probability, the earlier tenants may have planted trees to create a landscape. Roots of older trees often grow farther below the soil, and hamper the plumbing and foundation of the house. You may never be able to detect such problems by looking at a house, it is only when you actually start living there that such issues surface. It will not only mean a hole in the foundation of your old house but also your pocket.

Storage Issues
With the growing consumerism and increase in earnings, we have become serial hoarders or pack-rats. We tend to hang on to clothes that don’t fit us anymore, the gym equipment that we no longer use, travel bags are left gathering dust, etc. All this requires a huge storage space which is not found in old houses. Many times, these houses have sloping roofs, which cause storage problems in the attic, and you may have to get new customized storage options. And if you own three cars, it is pointless to buy an old house which offers a single garage.

Too Small, Too Soon
Even though old houses were built for large families, they do not cater to the need of a modern-day family. You may find that your 60s home is too small even for a family of 4, especially after the kids grow up. With the growing need for a separate living room, study, bedrooms, guest-rooms, kitchen, etc., an old house may seem like it is too cramped up and lacks space.

Undertake an house inspection before buying it so that you get an idea about the required repairs. Unlike a new home, there won’t be a builder’s guarantee. However, you can then ask the owner to either get the maintenance done or pay you for the expenditure. Old houses have steadfastly faced the test of time without giving in to changes in weather or climatic conditions. Now that you know about the pros and cons of buying an old house, hope you will make the right decision.

Buying a House with No Money Down

People, who are interested in buying a house with no money down, may benefit from the following options. It is important to understand the dimensions of the methods undermentioned, before you sign on the dotted line.
Buying a house with no money down was easy before the crash of the housing market. There were a number of sellers, who were more than willing to help an aspiring homeowner purchase a home with virtually no down payment. Then, there were piggyback loans that were provided by the primary mortgage lender, or in some cases, the owner of the property, and if none of these avenues were open, the buyer could always consider purchasing Private Mortgage Insurance. Lease to own is a modified form of seller financing that was also available to people with limited finances. The aforementioned options had their pros and cons.

Piggyback loans were the most popular means of financing amongst cash-strapped people, who were desirous of owning a home without making the requisite down payment. Private Mortgage Insurance (PMI) was next in order of popularity. Seller financing — in case of piggyback loans — also became popular as home prices continued to escalate.

Today, piggyback loans are much harder to come by, although some lenders are still willing to consider Private Mortgage Insurance (PMI). In addition to these options, eligible borrowers can avail zero down VA-insured loans and 100% USDA financing. Buyers, financing through state Housing Finance Agencies and certain non-profits, can use the $8000 tax credit for making the down payment on the secondary financing provided by the aforementioned entities for availing a FHA-insured home loan.

Feasible Methods

► Private Mortgage Insurance
No-money-down homes have been made possible by allowing the borrower to procure a mortgage loan that requires private mortgage insurance as an alternative to the requisite down payment. Typically, the expected down payment is 20-25% of the purchase price of the home. PMI makes it possible for a person to obtain a mortgage loan, without paying a dime by purchasing insurance that protects the mortgage lender in the event of the former defaulting on the loan. Of course, the borrower/aspiring homeowner is required to pay insurance premium on a regular basis.

Although the premium is tax deductible, people often preferred piggyback loans to Private Mortgage Insurance, since the amount of insurance premium was generally more than the interest on piggyback loans. However, today PMI is the best bet for a person, who is keen on buying a house with no money down.

► USDA 100% Financing Program
United States Department of Agriculture (USDA) has a loan guarantee program that is better known as Section 502. The Housing and Urban Development Program (HUD) aids in financing buyers who are purchasing a house or a property for the first time. This program specifically is designed for low-income families so that they may own a property without suffering the grind of down payments. It is meant to provide 100% financing to first-time homeowners and people living in structurally unsound homes to help them purchase a home in the targeted rural areas. The best part about these loans, for people who qualify, is that the borrowers do not have to purchase private mortgage insurance even though the loan is a zero-down mortgage. Moreover, the sellers are allowed to finance up to 6 percent of the purchase price of the property in lieu of closing costs. The rate of interest on the zero down mortgage loan is adjustable.

► VA-insured Loans
The U.S. Department of Veterans Affairs (VA) provides eligible veterans, the facility of buying a home with no money down. These loans are known as VA-insured loans and are meant for all veterans as well as active military personnel in the Army, the Navy, the Marine Corps, the Air Force, the Coast Guard, and the National Guard. The best part about these loans is that the mortgage is a 30-year fixed-rate-level payment obligation. Applicants with less-than-perfect credit are eligible to avail zero-down mortgages that can be used to purchase single-family homes, approved condominiums, and townhouses.

► FHA-insured Loans
Although Federal Housing Administration (FHA) insured loans require 3.5 percent down payment, the first-time home buyers tax credit of $8000 and the subsequent legislation, allowing borrowers to monetize the tax credit and apply it toward their home purchase, has resulted in borrowers being able to buy a home without making the necessary down payment. This is because people financing via state housing finance agencies and non-profits can be assisted by the latter with the amount of down payment on an FHA loan, thus providing ample scope for zero-down mortgage loans.

► House Trading
This is one lucrative way of buying a house with no money down. Active investors swear by the policy of trading properties. When one trades one property for another, the investor is also spared of legalities concerning capital gains — a factor that companions the scenario when a property is sold. This, precisely, is one spot-on pro that selling a property offers. Either it is one large property traded for a syndicate of small properties or skipping their city to buy a house in an all-together new town tagging it their holiday home.

► Leasing with an Option to Buy
Renting a property may be accompanied with an agreement stating the option to buy the said property, as well. Under the terms and conditions of registration mentioned, the lessee and the lessor draw up a negotiable amount that ought to be deposited at stipulated time period in lieu of the property being used. Besides, this agreement also inserts a clause that states the disposition of the lessee to purchase the property formerly leased, at a price set during the lease period.

► Federal Programs
Ad hoc programs are arranged in order to facilitate low-income families to own a house. The Rural Economic and Community Development Administration offers loans with humble interest rates. These programs are deemed pro bono efforts to encourage the underprivileged families to acquire a property of their own.

► Piggyback Loans
Prior to the sub-prime crisis, piggyback loans were the most popular means of financing for a person, who was desirous of owning a home without parting with the requisite amount of down payment. Although, the popularity of these loans has declined on account of these loans shouldering much of the blame for the sub-prime crisis, some mortgage lenders, still may be willing to provide no-money-down mortgages.

As per the guidelines issued by Freddie Mac and Fannie Mae, people, who intend to buy a home by availing a home loan are required to down pay 25% of the purchase price of the home. The remaining amount can be borrowed from a primary mortgage lender. However, the borrower can circumvent the 25% down payment by obtaining a second mortgage simultaneously. In other words, the primary mortgage lender provides a loan for 80% of the purchase price, and the second mortgage lender, the remaining 20%. Here, both mortgages are secured with the same underlying house as collateral. The second mortgage piggybacks on the primary mortgage and carries a much higher rate of interest than the primary mortgage.

Traditionally, piggyback loans were 80-10-10, 80-15-5, or 75-15-10 loans. The first figure from the left indicates the percentage of the purchase price funded by the primary mortgage lender, the second figure is the percentage funded by the second mortgage lender, and the final figure is the borrower’s skin in the game. In time, the final figure was reduced to zero and resulted in no-money-down home loans. Thus, the borrower could easily buy a house with no money down. The second mortgage that piggybacked on the primary mortgage was typically provided by the primary mortgage lender, who gained in terms of higher interest rates than those charged on the primary mortgage. In some cases, the second mortgage was provided by the seller/owner of the house. This brings us to the concept of seller financing.

► Seller Financing
Seller financing often accompanied piggybacked loans, since the second mortgage was either provided by the seller, or by the primary mortgage lender. Seller financing involves transferring the title of the house to the buyer in exchange for a note, and the right to foreclose the property in the event of default. The note is pretty much like a mortgage that is paid off as a balloon payment within a period of 5 to 10 years. Since it is a mortgage, the buyer is expected to pay the seller a hefty interest on the loan. The seller, in turn benefits in the form of a high rate of interest on the loan, in addition to a security interest in the house.

Although 100% seller financing is a thing of the past, it may be possible for an aspiring homeowner to down pay less than 20% and still buy a home, if the seller is desperate to get rid of the house.

In the present scenario, lease contract with option to buy is the best option for people, who are interested in buying a home with minimum down payment. By paying as little as 1 to 5% of the price of the property, the aspiring homeowner can acquire the right to buy the house at an agreed-upon price at some point of time in the future. The aspiring homeowner (lessee) can then rent the house for a period of 3 years or so and pay the amount of the rent to the landlord or the lessor. At the end of this period, the lessee can buy the home from the lessor at the predetermined price or may abstain from exercising the option. Considering the present situation, most sellers are persuading aspiring homeowners to enter into a lease contract with option to buy.

Buying a Foreclosed Home

The pros and cons of buying a foreclosed home should be considered by the buyer before embarking on the same. Besides, one must bear a few tips in mind to strike a genuine deal, when buying a foreclosed home.
In the current scenario, buying a foreclosed home seems like a wonderful investment. A number of economists feel that today, homes are as affordable as they were in 2004. Of course, there is a chance that people may not witness noteworthy appreciation in the price of the property for a long time. Given the state of affairs, a foreclosed home may be good purchase for people, who need a place to stay, rather than people looking at it from an investment perspective. However, aspiring homeowners need to be very cautious while buying a foreclosed home. More so, if the foreclosed property is going to be their first home purchase.

Find the Listings

The internet is the best place to find foreclosure listings. Typically, bank websites and the Housing and Urban Development (HUD) websites have detailed foreclosure listings. People should look for foreclosed homes sold by the Department of Veterans Affairs, Internal Revenue Service, Small Business Administration, U.S. Army Corps of Engineers, Customs, U.S. Marshals Service, Department of Agriculture and Rural Development, Fannie Mae, Freddie Mac, Federal Insurance Deposit Corporation, and General Service Administration. The website of the National Association of Realtors, also has a plethora of information on home foreclosures for sale. Newspapers, too, carry information regarding proposed auctions, the names of the homeowners, and the lenders.

Important Tips

Foreclosed homes are disposed off at auctions held on the steps of the county courthouse. People, who have considerable experience in buying foreclosures, can buy the foreclosed home at this stage. Risk-averse individuals should not buy a home that is being auctioned on account of the following reasons:

☛ The bidders are not allowed to inspect the property before making a bid, although it, certainly is possible that the home may be in need of serious repairs. The successful bidder is expected to make the payment right away and may not have time to inspect the property again. The title deed may be unclear, and there may be additional liens against property that may have to be borne by the buyer. The buyer also has the unsavory task of evicting distraught tenants from the property, and the latter may vandalize the house out of spite before bidding goodbye to a home that was once theirs. House auctions also tend to inflate the price of the property and may end up costing the bidder much more than it, actually is worth. Thus, buying at an auction is not advisable for a novice. Even a seasoned player may find it difficult to navigate the aforementioned risks of buying a foreclosed home at an auction.
☛ If the property is not sold off at an auction, the bank winds up with the deed to the property. The home that is now a part of the bank’s inventory, is referred to as real estate owned (REO). The bank may price the REO at a reasonable figure just to get rid of it. In addition to low cost, there are numerous benefits of buying a foreclosed home from a bank.
☛ The buyer can inspect the house before purchasing it. At times, banks may pay for repairs that are found during preliminary home inspection. Buying a bank foreclosed home is a good deal for the first-time home buyer, since the buyer does not have to concern himself/herself with evicting tenants. The bank also tends to negotiate with other creditors and gets rid of taxes and other liens against property.
☛ A seasoned investor may consider purchasing a tax-lien foreclosure that is the result of the homeowner defaulting on property or income tax. The home, again is sold at an auction, and it may be disposed off for as low as 60% below its market value, since the government is only interested in recovering the taxes.

Finer Points

❒ A mistake that most first-time buyers commit: They do not weigh the pros and cons before buying the property. Majority are lured by the price tag. A lower price does not mean the deal is in your favor. Well, this, precisely is not the real deal. Before you sign on the dotted line, question yourself on a few important variables. Does the house need major repairs; would you be refurbishing the house and renting it in the future; do you have the capital to maintain the house, if you don’t find a tenant to rent the place — these are a few questions that may help you judge your efforts and sort your options better.
❒ Inspecting the house, thoroughly, before you make up your mind to possess the property, is an absolute requirement. If you are planning to buy a foreclosed home in another city, you need to make several trips to the site and recce the place. Asking someone else to do the job for you is a waste of time. It is you, who needs to be proactive and take the final step.
❒ Know that the neighborhood matters. If there have been a number of foreclosed properties in the vicinity of the house you are planning to buy, you may be unable to cope with major repairs as the value of the house itself is deprecated. Besides, learn how the neighborhood looks during the day and the nighttime. The neighborhood that looks lively, however, does not breed hubbub, fetches potential buyers to invest in the property.
❒ Another important variable you must counter-check is the current condition of the house. The present state of the house does matter. It reflects on the degree of refurbishment the house requires and the amount you must shell out for the purpose. Besides the filth and the muck build up, there are various plumbing- and sewage-related problems that set in. Better check, if the pipes are in a good condition; if not, make way for modifications. If the problem is not sorted, there may be complications in the future. Water leaking, courtesy of the cracked pipes, which seeps onto the walls is not a pleasant situation to be in and amending the same after you have rented out the house is not an entertaining idea.
❒ What adds to the house price, is the landscape. Overgrown bushes, unkempt trees with occluded branches lead to depreciation of the property. There are times when overgrown branches gatecrash the spaces, predominantly the windows of the house, and pave the way for deterioration.

Hopefully, the aforementioned tips on buying a foreclosed home will be of use to a buyer, who is keen on buying his/her first home. Price of comparable properties is an important factor that has to be taken into account regardless of whether one buys a REO, a tax-lien foreclosure, or bids at an auction. The absorption rate, or the length of time required to sell the current inventory given the present rate of sales, also needs to be calculated, since a low absorption rate is a bargaining chip for the buyer.