Dad's homebuying advice is back in fashion
It was a different world when Dad bought his first home.
But oddly enough, a lot of his homebuying advice (unlike some of his tie collection) is back in fashion.
Putting up a sizable down payment, holding back some cash reserves in the bank, and shopping smart so you can get the best deal on a home loan? You'll make the old man proud.
Here are five homebuying tips from Dad that will serve you (and him) just as well in today's market.
Never buy the most expensive home on the block
When Dad told you to never buy the most expensive house on the block, he was talking about appreciation.
Over time, home values in a neighborhood tend to even out. So if you have the most expensive home, its value won't increase as much as will a low- to mid-priced home in the same neighborhood.
Conversely, according to this theory, if you want to get the most bang for your housing buck, buy a less expensive model on the best block you can afford.
"The principle is, if you are buying the least expensive house on the street in a good location, the value has nowhere to go but up," says Katie Severance, co-author of "The Complete Idiot's Guide to Selling Your Home."
The location is the one thing you can't change, so when you make improvements, "the appreciation is much more rapid and much steeper," she says.
But the smallest-home scenario can be tricky, says Patricia Szot, immediate past-president of the MetroTex Association of Realtors in Dallas. You don't want a home that is markedly smaller unless you're looking to do some serious upgrades or additions to make it equal to the neighbors, she says.
Otherwise, the lack of comparable properties in the neighborhood could hurt you when it comes time to sell, Szot says.
Don't buy more than you can afford
A few years ago, lending standards were lax. The sky was almost the limit on how much home a buyer could purchase. But, as Dad may have mentioned a time or two, that's just bad math.
Keeping the house price to two or three times your income "is still a good rule of thumb for anybody -- especially for the first-time homebuyer," says Szot, who is also the owner of Keller Williams Lake Cities.
When Severance's parents bought the house she grew up in in 1968, it cost less than one year's income for her surgeon father. But the idea of committing that much money was scary for both her parents, she recalls. "Your father did not sleep," her mother admitted many decades later. "We were terrified."
The difference between home debt then and now is "largely attitudinal," Severance says.
While the seesaw on the advisable price-to-salary ratio has swung widely in recent years, it can pay to set the needle where it's truly comfortable for you. And knowing you can meet the mortgage will mean a lot less anxiety and a better night's sleep. Call it a gift from Dad.
Shop before you take the first loan you're offered
Dad knows that when it comes to money, you never take the first offer. If nothing else, you need to know whether you can cut a better deal.
For many buyers, shopping smart for a home means haggling over the home price and seller concessions. Some buyers miss the opportunity to shop for the best terms on the loan.
Buyers definitely need to loan-shop more, says Eric Tyson, author of "Home Buying for Dummies."
Bankrate.com's mortgage rate table is a good place to start looking.
"It's always a good idea to make sure that you're checking a number of sources," Tyson says. "The mistake people make today is they are busy, and may call one or two places on a referral."
It makes sense to talk to not only several lenders, but different types of lenders -- local lenders, national lenders and mortgage brokers (who will shop the loan to a number of sources), he says.
Don't borrow every penny you qualify for
Dad knew that you should hold a little money in reserve.
For too many of today's homebuyers, their target price is 100 percent of whatever they can borrow, plus their down payment, says Michael Corbett, spokesman for Trulia.com and author of "Before You Buy."
But smart money says don't take it to the max with that mortgage, he says. "Whatever the bank will loan you, take 20 percent less," Corbett says. "It's a buffer for you. It gives you the ability to be in a home and not be pushed to the very limit of what you're capable of right now."
And besides, wouldn't it be nice to live in a home you can "comfortably afford, and build up a reserve of savings, too?" he says.
So look for a house that you love -- and meets your needs -- that you can also pay off easily, Corbett says.
Another piece of Dad wisdom: Opt for a stable, straightforward fixed-rate mortgage. "You want to know what your mortgage is today, and you want to know what it is going to be 10 years from now," Corbett says.
Do it right or don't do it
Want to scuttle your home equity and lower your property value simultaneously? Do it yourself, and do it poorly.
A lot of homeowners try to save money with do-it-yourself renovations, retrofits or expansions. Some owners hire a professional contractor to start the work, and then the owners complete the project. Too often, the result looks horrible, Szot says.
"If they can't do it with quality, they shouldn't do it," she says. New work has to match the rest of the structure, she says. And you have to do it legally and have all the permits and paperwork for the next buyer.
An incompetent DIY job can hurt your home value, she says.
"The buyers dictate the market, pure and simple," Szot says. "And if it's not done to be on par with the rest of your home, then it's taking money off your sale price instead of adding to it. Because savvy buyers are calculating what's it's going to cost to make this more feasible."