Q–Is there a rule of thumb as to what price home I can afford to buy? I earn a about $45,000 annually and my wife earned $23,000 last year from a part-time job. What home price range can we afford?
A–The exact answer requires knowing the amount of your down payment. If you have a substantial down payment, at least 10 to 20 percent of the home’s purchase price, you can generally buy a home priced 2.5 to 3 times your gross annual income.
That means you can afford a home up to about $200,000. Of course, obtaining a conventional mortgage also requires a good credit history. If credit is a problem, don’t forget alternative financing such as a mortgage carried back by the seller. Work with a realty agent who understands creative finance.
Q–I was impressed by your recent article about fixer-upper properties, but it seems to me they require a lot of work for a very indefinite profit. Isn’t there a better way to earn real estate profits?
A–The “good old days” of rapidly inflating property profits are gone. Homes are appreciating less than 5 percent annually in most communities. The best way to assure realty profits is to buy a fixer-upper property, such as a sound, well-located but run-down house, and upgrade it by making profitable improvements. It’s called “forced inflation.”
The same fixer-upper principles apply to all types of real estate, including houses, shopping centers and office buildings.
Q–I recently sold my home. On the closing settlement statement, I was charged for property taxes even though they weren’t yet due. Was this a mistake? Should I demand a refund? I should have protested, but nobody can understand the complicated closing figures thrown in front of home sellers at the last minute.
A–When a home is sold, the property tax for the current tax year is prorated between the buyer and seller regardless when the tax is remitted to the tax collector. You were charged property tax for the number of days you owned your home and the buyer was credited for those days.
When the property tax bill came due, the buyer had to pay the entire bill even though he was credited with your part of that bill. Property tax prorations are a normal part of the home sale procedure.
Q–I moved out of my house about three months ago. A few weeks ago, I accepted a buyer’s offer. She has been preapproved for a mortgage. Since the house is vacant, she has asked to move in before the sale closes at the end of the month. My realty agent advises against doing so. Is this good or bad advice?
A–Your real estate agent gave you excellent advice. Don’t let a home buyer move in before the title transfer is recorded. The buyer is likely to find real or imagined defects and will insist they be corrected. In other words, letting the buyer move in before the title is transferred can lead to trouble for the seller.
Q–My daughter was recently accepted at an Ivy League college, but we are not poor enough for her to receive financial aid. We have about $100,000 home equity and are wondering if we should refinance our mortgage to pay for her education?
A–Refinancing your home mortgage might not be the wisest alternative. I suggest you consider a home equity loan. Virtually every bank, S&L and credit union offers these second mortgages, which are really a credit line.
During your daughter’s first year at college, borrow only what she needs. You will pay interest just on that amount. As the years go by, borrow the additional amounts needed. A home equity credit line is an excellent way to finance a college education at minimal cost.
Q–Several months ago you explained the different types of real estate listings. The one that interested me was the exclusive agency listing. I want to sell my condominium, so I contacted several local brokerages. Their agents were eager to list my condo for sale, but none would take an exclusive agency listing. They’d never heard of it. What should I do?
A–Most realty agents do not like exclusive agency listings. The reason is no sales commission is owed if the seller, rather than the listing agent, finds a buyer for the property.
Most agents prefer the exclusive right-to-sell listing. Under this arrangement, whether the listing agent or the seller locates a buyer, the listing agent earns a full sales commission.
Q–I live in an older apartment building with low rent, which the elderly owner refuses to fix up. I want to recarpet my apartment. The owner will allow it, but she says the carpets must stay when I move out. Is this legal?
A–Yes. The general rule is tenant improvements belong to the landlord unless a contrary agreement is made. Since the wall-to-wall carpets will be attached to the building, therefore converting the carpet into a fixture, the carpets belong to the landlord. For further details, please consult your attorney.
Q–I avidly read the real estate newspaper section every week, starting with your column, of course. What is the best way to learn about real estate? I might like to go into realty sales or property management as a career.
A–Virtually every community college offers excellent basic real estate courses. Start with Real Estate Principles. Then take Real Estate Finance, Law, Property Management, Investment, Appraisal and other valuable classes. You will soon know which area of real estate interests you most.
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PLEASE NOTE: Real estate laws vary from place to place. Be sure to check the laws of your state and municipality before making decisions on real estate matters.
Write to Robert Bruss at Tribune Media Services, 435 N. Michigan Ave., Chicago, Ill. 60611.
