9 real-estate deal breakers

VIA MSN REAL ESTATE

Whether you think you’ve found the perfect house, the classiest neighborhood or the friendliest neighbors, be sure to step back and look at the big picture when you’re shopping for a new home. Was there something you missed along the way because of your enthusiasm?

“A lot of first-time homebuyers fall in love way too fast, and then look for reasons to fall even more in love instead of the other way around,” says Kathryn Alesandrini, a real-estate agent based in Malibu, Calif., who works for Dilbeck Christie’s Great Estates.

Even experienced homebuyers aren’t immune from love at first sight, but they might be more aware of signs that could signal a deal breaker. Here are nine questions that will help you identify potential pitfalls.

• Video: Bogus real-estate deals

1. Do you qualify?
The first deal breaker for many homebuyers — especially with today’s tighter lending standards — is not qualifying for their desired price range. “You’d be surprised how many first-time homebuyers want to see the house, then get truly disappointed when they find out they’re not qualified to buy it,” says Sonya Ann Loose, an agent with Red Carpet Real Estate in Gladwin County, Mich.

What to do: It’s discouraging to start your search looking at homes you can’t afford. Talk with a loan officer or mortgage broker early in the process to help you set reasonable expectations. Here are other things to consider at the outset:

• Upfront costs: Every loan requires a certain percentage as a down payment, usually a minimum of 10%. Add to that the amount you’ll need for closing costs, and you could be in over your head before you’ve signed any paperwork. (Read “How to save on closing costs” to learn more.) “Sometimes initial application appointments are overwhelming,” Loose says. “(Homebuyers) should know clearly what percent they would be expected to bring as the down payment.”
  
• Types of homes: Some loans limit the types of homes that buyers can purchase. For instance, Loose warns that some lenders won’t allow loans for a manufactured home in some areas. “They need to understand what home they are qualified to buy under that loan,” Loose said.
  
• FHA — or nay: Although loans backed by the Federal Housing Administration are popular because they require a down payment of as little as 3.5%, there are limits to the perks. “Buildings aren’t necessarily all FHA approved,” says Best Chicago Properties real-estate agent Chuck Gullett. For instance, if you’re interested in a condo and still prefer to pay the lower down payment despite limited options, a search of FHA-approved condos on the Department of Housing and Urban Development’s Web site could save you letdowns down the road. (Read “Why ask for an FHA loan” from HUD if you’re contemplating an FHA loan.)

2. Is this the right neighborhood for you?
Maybe you’ve always dreamed of living in a certain city or even a specific neighborhood. But when it comes time to buy a home, you may find that your dream community isn’t all that you hoped it would be. (Read “Make a neighborhood love connection.”)

What to do: Before viewing any homes for sale, take advantage of online databases such as Move.com’s City Profile Report, which gives you a detailed look at specific neighborhoods using demographics, finances and economics to help determine quality of life. (Move and Realtor.com are MSN Real Estate partners.)

• Price range: Narrow your search by limiting yourself to neighborhoods with a large number of homes in your price range. It’s not a hard and fast rule, but it can prevent the potential heartache of looking at disappointing houses in otherwise perfect neighborhoods. Search for home values in different regions at Realtor.com.
• Cost of living: Prospective homeowners should factor in expenses such as groceries, gas, child care and even property taxes, which can vary widely across the country. (Compare property taxes at Property Shark.) If a high cost of living isn’t enough to sway you from a certain neighborhood, lower your target price range to offset the difference. (Read “Is your suburb overpriced?” to see how high costs have affected some U.S. communities.)
• Commute: You may love a neighborhood’s bohemian vibe, but what if living there drastically increases your commute to work or for errands? Even if the new commute doesn’t look far on a map, give it a try during rush hour to see if it’s bearable. The eco-friendly commuter can look up public transportation systems nationwide on the American Public Transportation Association’s Web site, or check a neighborhood for walkability with the help of Walk Score. (Read “America’s most walkable big cities.”)
• Culture: If you’re hoping to get involved in your new community, Move.com’s City Profile Report can help you find a neighborhood where you’ll fit in based on demographics such as median age, family size and education level. Community festivals and other gatherings can also be a draw – or a deterrent – for some residents. (Read “Taking it to the streets” to learn more about neighborhood festivals around the nation.)

3. What’s that smell?
You’re already in love with a neighborhood, and now you’re also sure you’ve found the home of your dreams. But that perfect neighborhood could have a few imperfect blocks, and one of them could be where your new home sits.

What to do: Spend a couple of afternoons walking through the neighborhood. Do you notice anything that could end up putting a damper on your quality of life? Maybe you’ll discover a noxious odor that permeates the block once a week, or you learn from a neighbor that teens use your street as a racetrack in the wee morning hours. Perhaps you’re seeing more foreclosure signs than you were hoping for, which could be cause for concern about home values, as well as crime in the area. (Read “How to find a safe neighborhood.”)

4. Is it really a good deal?
Once you’ve narrowed your search to a few neighborhoods, don’t fall for the first bargain that sweeps you off your feet. “Some people are blinded by just the value and are not stopping to consider: ‘Do we have the money to fix this up? Do we have the ability?’” Loose says. Just because the price is right doesn’t mean the home is.

What to do: Even if you’re a do-it-yourselfer, remodeling costs add up quickly. If the home you’ve fallen for has flaws that you can fix down the road, you can hope you’ll have enough equity in the home within a few years to take out a home-equity line of credit. But will it be worth the cost? And will you actually do the project? “If you don’t have the money to put into it, then you really shouldn’t be just looking at the value,” Loose said.

5. I owe more than just the mortgage?
After you’ve chosen a home, it really starts to get down to the nitty-gritty. “First-time buyers think the majority of the work is finding the place,” said Gullet, who writes a Chicago real-estate blog. “All the work really starts with paperwork and negotiations.”

What to do:“It’s important for first-time buyers to understand that there are other costs in there,” says Alesandrini, whose blog includes tips for first-time homebuyers. “It’s not just what the loan’s going to cost you.” Expenses such as property taxes and utilities need close scrutiny, as they potentially change from one owner to the next. Then there are other expenses that might break your bank if you don’t plan for them.

• Taxes: Although you’ll learn early on what you’ll be expected to pay in property taxes, those prices can increase dramatically because of new levies or even reappraisals of your property, such as what’s happening in parts of northwestern Montana. Keeping track of local issues and price fluctuations in your neighborhood can help you prepare for any added costs. (Read: “Win a property tax reduction.”)
• Utilities: After years of living in rentals, where basic utilities such as garbage, heating, water and sewer often are included in the rent, monthly utility bills can come as a shock to first-time homebuyers. Your real-estate agent should be able to get an estimate of the monthly costs from the current owners, but even that price is subject to change. “You really can’t rely on what the current owner pays,” Loose said. “It all depends what you’re doing with the property.”
• Condo dues: Although your monthly costs are disclosed with the sale price, keep in mind that they often go up 3% to 5% a year, Gullett says. He added that it’s crucial to request and review the condo rules and regulations, declarations and bylaws, meeting minutes and operating budget. “After inspecting these documents and speaking with the management company, the buyer can make a better informed decision on the purchase,” he says. (Read: “Condo buyers: How to protect yourself” for more savvy skills.)
• Homeowners association dues: Similarly, if you move into a development with an HOA, you’ll want to know upfront what your monthly bill will be. But your homework doesn’t stop there. Fees can sometimes increase up to 20% a year, and fines for not following regulations can easily sneak up on homeowners who don’t read the fine print. (Read “The runaway power of homeowners associations.”)
• Homeowners insurance: Rates can vary by neighborhood and provider, but the average premium paid in 2007 was $822, according to the Insurance Information Institute. If you’re concerned, most insurance companies provide estimates.

Read: There's more to a home's cost than just the mortgage

6. My sofa doesn’t fit?
It’s easy to fall in love with a place that’s staged to perfection, but most people have more than just a coffee table and sofa in their living rooms. If that’s you, a tape measure could keep you from spending money on new furniture and other belongings that weren’t in your budget.

What to do: Compare the total square footage of a potential home to your current digs, but be sure to also get the dimensions for each individual room. Just because the home is 1,500 square feet doesn’t mean it has a room that’s the right size for your 52-inch flat-screen TV.

7. Legal issues
The preliminary title report you receive before you sign a contract to buy a home should tell you everything you need to know about easements, liens or pending litigation on the property, but that doesn’t mean those problems can be easily remedied.

What to do: Many of these issues are beyond a buyer’s ability to fix, which can lead to mounting frustration and a desire to walk away if your closing date keeps getting pushed back.

• Easements: Easements such as shared driveways are often obvious to buyers, but other easements such as a water main that requires access from utility companies or plans for a major road through your property could become problematic. Alesandrini says you have the option to have an attorney help you try to reach a compromise on the easement, but that process could be time-intensive and expensive.
• Liens: If anybody has placed a lien on a home you’re hoping to buy, the most that a buyer usually can do is sit back and wait: The deal won’t close until the seller pays off the lien. Although that’s not a deal breaker for most people, those who have to move out of their current home or who are on an otherwise tight schedule may choose to abandon the deal.
• Pending litigation: This is especially important to be aware of when buying a condo, because if the building you want to buy into is in the middle of a lawsuit, many lenders won’t finance your loan.

8. Is the infrastructure sound?
You may not see major flaws in a home’s infrastructure, but a home inspector or other professional can find costly problems that could break the deal.

What to do: Most states require home inspections before a sale can close, but they’re recommended even in states that don’t require them. Alesandrini says she occasionally refers buyers to specialists such as structural engineers or geologists if she believes a home may need a closer look. “We cover everything,” she says of real-estate agents, “but when they really need in-depth help, they need to go to specific professionals.” The seller may agree to fix major problems found at that point, but if not — or if the problems are beyond repair

-- it may be time to walk away from the deal.
Condo buyers also could benefit from a building-wide inspection since they’ll be expected to help pay for any structural damage down the road. “You’re not just buying into the unit, you’re buying into this huge complex along with all the problems,” Gullett says.

9. The appraised value is what?
So you’ve settled all of your differences with the seller and you’re ready to fall in even deeper love with your home. Then the appraiser comes, and the value she throws out there is way below what you agreed to pay. What now?

What to do: Loose said that this is especially common in areas with a strong buyer’s market, and that it can be detrimental to the sale. Somehow, the buyer and seller have to find a way to pay the bank the difference between the appraised value and the agreed-upon sale price. But if neither party is willing to budge, it’s bye-bye dream home. (Read “New appraisal rules cause chaos” to learn about changes in the system.)