SayEducate

Lost among the news about the current sub-prime mortgage meltdown is the housing market for second homes. Though the news media is focusing on the problems people are having with their first homes, there is plenty of news not being reported about vacation homes.

Vacation homes are those secondary houses people own at the shore, lake, or other favorite vacation spot. Most are small residences though some owners have lavish estates rivaling their primary home in size and in value. You’ve seen these homes spring up along prime waterfront property over the past two or three decades — houses which dwarf the cottages which once dotted most communities.

If you are already familiar with a particular vacation market, you probably have witnessed a recent trend: plenty of homes are for sale and those that are selling are going for a heavy discount. One of the most stressed markets offering fantastic deals is Miami where a spate overbuilding has forced prices down in a hurry.

For people wanting to come away with a great deal there are some things to consider:

Take Your Time — Finding a vacation home for a very low price isn’t difficult to do. But, pouncing on the first property that comes along can show that you are being too hasty.

Because you’re in a buyer’s market you’ll want to determine a few things first:

• Are you familiar with the area where you want to buy?

• If purchasing a condo, how many units are vacant? There could be a reason why your unit is going for a song — the association managing it could be bankrupt.

• How often do you plan on visiting your second home? Do you plan to rent it out? Would you do better simply renting a home every year instead?

• What are some of the related fees to managing the property — i.e., garbage removal, landscaping, outside maintenance, etc.?

• Based on the information available, will your second home appreciate in value? You may have no plans on selling, thinking that your children will enjoy your home when you are gone. Don’t count on that — they may not be interested in maintaining the property later on.

Financing Your Purchase — many second home buyers tap the equity in their first home to buy their second home. But, you may not want to put your first home at risk by purchasing a vacation home. Consider:

• Will you be able to find financing for a vacation home?

• What rates are being charged? Some lenders avoid second home financing while others specialize in financing vacation homes. Will you have to pay a premium rate in order to finance a second home?

Insurance costs can be a deal breaker especially for homes along the ocean. When Florida and New Orleans were ravaged in 2004 and 2005 by a series of hurricanes, insurance companies jacked up their rates, sometimes three- or four-fold to cover their risks. Can you afford to pay $4000 in homeowners insurance annually on your beach property?

The good news is that many second home markets are likely to be depressed for the next few years, taking the pressure off of you to make a fast decision. Look around, shop around and you’ll come up with a deal that is fantastic and one you can live with for many years.

You’ve found the house that you want, have arranged financing, and are preparing to go to closing. Several years of scraping by has put you in the position to finally switch from being a renter to becoming a homeowner. Nearly every dollar saved has been set aside for the down payment with closing costs also covered.

At least this is what you would like to think.

Future homeowners are sometimes surprised to find that certain ‘garbage fees’ have been added on to their closing costs. Not the fees to pay the lawyer or the lender only, rather typically smaller, but still costly fees which can add up when tallied together.

If you didn’t pay close attention to the initial estimate of fees you were given when you purchased the home, then your closing costs are probably higher than you had expected. A shocking surprise and a possible hardship as well.

By law, mortgage lenders are required to disclose fees charged in connection with obtaining a mortgage. They have three days to get this information to you once you have submitted your loan application.

The fees listed, however, are only an estimate, meaning your costs could actually be higher.

Points and title insurance are two ‘garbage fees’ most consumers know about, but there are also fees for flood certificate, courier, tax service, notary, wiring, and more. Processing and documentation fees are also charged and your local tax jurisdiction may charge a filing fee too. In addition, if you change the type of loan you want after submitting an application, expect to be charged for that too.

To avoid surprises, make sure that your mortgage lender provides final notification of fees prior to closing. Have duplicate fees removed and, if possible, ask if some (if not all) fees would be waived — many lending institutions are now waiving some or all fees in a bid to attract new business.

Enjoying your new home shouldn’t be tempered by fees which can add hundreds of dollars to your closing costs.

Resources

12-step Mortgage Guide

Rate Shopping Sheet

I had good laugh recently when I came across an article written by a real estate agent who insisted that condos are a “great buy” and that they hold their value in a down market. Tell that to the thousands of Florida condominium owners who can’t get rid of their properties without taking a major loss!

True, in some markets condominium sales are still strong, particularly in downtown markets that are poised for explosive growth. Our nearby capital city, Raleigh, is one area that comes to mind. In Raleigh, new buildings are going up or being converted and the condos are selling at a brisk pace.

For many other areas of the country, it is truly a buyer’s market. Overbuilding, a tight economy, mortgage problems, and hesitant consumers are some of the reasons why condos aren’t selling. Or, if they are, they’re selling at a deep discount.

If you are in a position to buy a condo right now, you could come across a good find. However, even in similar desirable neighborhoods there are some things you should know before choosing a particular condo:

The HOA — An HOA or Home Owner’s Association consists of a group of people who also live in the same condo development and are responsible for overseeing its care. Each HOA has a rule book which you should be familiar with before buying. For example, you may enjoy growing tomatoes on your balcony, but the HOA could forbid this practice. After paying $320,000 for a two-bedroom, two-bath unit with a great view, is this something that you can accept?

Fees — You’ll be paying a monthly fee to the HOA for keeping common areas in order, removing trash, shoveling snow, etc. This fee can add $80 to more than $500 to your expenses each month. You may get “a deal” when buying your condo, but that excellent buy can evaporate once you figure in association fees.

Property Taxes — Thinking that property taxes can’t possibly be all that high, many condo owners are stunned to learn just how expensive their taxes are and how easily they can move up when the city raises taxes.

Insurance — Your HOA fee will cover some of the insurance costs for the building, but you’ll be responsible for insuring your unit and everything in it. Talk with your insurance agent in advance to learn how much you can expect to pay for homeowner’s insurance.

Once all of the related expenses have been determined, you are in a better position to negotiate price. If the market is slow, then you have additional leverage to ask the seller to lower his price. Compare recent sale prices with the unit you are considering to come up with a fair offer.

Finally, there isn’t anything better than a top location to determine if your condo is worth buying. Check out the neighborhood, walk around the condo building, and hang out in the unit you are interested in buying to get a feeling for noise levels, lighting, the ambiance, and more.

With the market in your favor you can choose to be selective and take your time: unloading an unwanted condo can be difficult to do, especially in a tough market.