Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, July 16, 1990 TAG: 9007140013
SECTION: BUSINESS PAGE: A5 EDITION: METRO
SOURCE: MAG POFF BUSINESS WRITER
DATELINE: LENGTH: Long
In most cases, new homeowners must stay put until appreciation recoups the up-front costs of buying.
There are a couple of ways, however, for creative - or lucky - people to recover initial fees faster.
Frances Bridge, spokeswoman for the Roanoke Valley Board of Realtors, said it takes at least two years, and more probably three years, to make up the closing costs.
The same period was estimated by Sue Gotwalt, relocation director for Boone & Co.
Carol Divers of Crestar Mortgage, on the other hand, thinks it may take a long as five years to become financially whole.
"Look to stay there four to five years before you make another move," said Betty Sample of Sovran Mortgage. "Put some equity in your pocket."
Don't forget, Bridge warned, some closing costs are waiting for you at the other end of your affair with the house. Selling also triggers some expenses.
But not like the expense of buying. Bridge, a broker with Mastin Kirkland Bolling, said the minimum down payment is 5 percent, plus points and closing costs.
Before it's over, Bridge said, most buyers sink 10 to 12 percent of the home's cost into the acquisition process.
It's a good deal for most people because their homes appreciate before selling time. How much depends on how cleverly you buy.
Sample estimates this year's appreciation at 5 to 8 percent. "The area is so stable you will not see runaway appreciation - and not depreciation."
An 8 percent annual return, Sample said, means a home is "a good place to have your money."
Sue Gotwalt, relocation director for Boone & Co., said she's stopped "guesstimating depreciation."
Some neighborhoods, Gotwalt said, have virtually zero growth. In other areas, the gain is something like 15 percent a year.
Bridge estimated 6 to 8 percent a year, but she said buying in an appreciating area is critical.
Hot areas now, she said, are southwest city and county, parts of north county, parts of the 460 corridor and Botetourt.
Bridge said, however, that the most rapid appreciation is in "pockets," or certain sought-after developments within those areas.
Taxes also play a part in balancing costs between renting and buying.
Income tax deductions for interest and taxes obviously favor home ownership.
Anyone who sells a house has only two years to buy one of equal or greater value in order to defer taxes on capital gain. That can outweigh any uncertainty about the date of still another move.
Rent also is part of the financial equation.
Gotwalt said a two- or three-bedroom apartment at one of the "upper end" complexes costs about $500 a month.
Renting a comparable house, she said, means an outlay of $500 to $800 - equal to most buyers' house payments.
To buy, however, requires qualification for the mortgage.
Divers said that calls for a credit review: proof of timely payment of rent, ability to save, job stability and proper handling of credit.
For a conventional loan, she said, the house payment should not exceed 28 percent of gross income. Total monthly installment payments for the house, car, credit cards, student loans and the like should not exceed 36 percent of gross income.
The comparable figures for an FHA loan are 29 percent for the house and 41 percent for all installment debt.
Sample said that anyone who might sell within a few years should choose a higher interest rate with low points.
She said it's possible to obtain a loan at 10\ percent with no points, compared with 9 1/2 percent with 3\ points.
People planning to stay in a house five or more years should select the lower interest, Sample said, but it takes four to five years to offset the up-front points.
"I don't encourage people to pay a lot of points unless that's their dream home," Sample said.
Michael Hincker of Dominion Bankshares Mortgage said one possible solution for short-term buyers is assumption of an existing FHA or VA mortgage.
That avoids closing costs, he pointed out, and in some cases short-circuits the credit approval process as well.
Any FHA mortgage prior to December 1986 or VA mortgage prior to February 1988 can be transferred freely between the parties without a credit check, Hincker said.
Hincker warned, however, that sellers should go through the process of releasing liability. Without that step, a seller remains liable for mortgage payments if a buyer defaults.
Saving the closing costs is one way of making a purchase pay off in 12 to 18 months, he said.
Another, Hincker pointed out, is to find a real good buy.
Gotwalt said another method is to buy and rehabilitate an old house in a good neighborhood.
"Raleigh Court is one of the hottest markets in Roanoke," Gotwalt said. Young couples who fix up a house there "make good money - they turn it over."
Bridge advised would-be buyers to work out the finances on paper, considering the cost of rent, monthly payments and tax savings. "Look at it coldly."
When you figure your appreciation, Bridge said, calculate on the basis of your investment, not the value of the house.
People who buy a house for $100,000 may sell it several years later for $120,000, figuring they made 20 percent.
Actually, Bridge said, they may have invested only $10,000 of their own funds in the house. So they doubled their money in just a few years.
by CNB