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Buying or Building A New Home

Thinking of buying or building a home in Southern Maryland? Here are answers to some common real estate questions.

Should I build a home or buy an existing home?
No matter which option you choose, sale price increases for either type of housing are tied to location, growth of the local housing market, and the condition of the overall economy. There are pros and cons to each type of home. Some think it is riskier to buy in a new neighborhood rather than purchasing in an established neighborhood. In either case, future appreciation in value depends on many of the same factors. On the other hand, some believe a new home is less risky because things won’t wear out or break down and need replacing right away.

What can I afford?
As a general rule, you can afford a home with a price equal to twice your gross annual income. To more precisely figure out what you can afford, consider these six factors:

  1. Your income
  2. The amount of cash you have available for the down payment, closing costs, and cash reserves required by the lender.
  3. Your outstanding debts
  4. Your credit history
  5. The type of mortgage you select
  6. Current interest rates

A lender will analyze your income in relation to the projected cost of the home and your outstanding debts to determine the size loan you can borrow. Determine your housing expense-to-income ratio by calculating your projected monthly housing expense (which include the principal and interest payment on your loan), property taxes, and hazard insurance. The sum of these costs is called the “PITI.”

Monthly homeowner dues and private mortgage insurance are added to the PITI. When you’re done calculating, your housing income-to-expense ratio should fall between 28 to 33 percent. Twenty-eight percent of your gross monthly income is allotted toward PITI; 33 percent of your gross monthly income is allowed for PITI and all long-term debt. Under certain circumstances, some lenders will allow for higher income-to-expense ratios. Your total income-to-debt ratio should not exceed 34 to 38 percent of your gross income.

How do I find out about the condition of the home I’m considering?
When you decide to buy a home, it’s strongly recommended that you hire a professional inspector to inspect the home. Many inspectors belong to the American Society of Home Inspectors (ASHI), and they attend seminars to stay on top of current developments.

In Maryland, sellers are required to complete a disclosure form that reveals everything they know about their property. Sellers are required to indicate significant defects or malfunctions in the home’s major systems. A checklist specifies interior and exterior walls, ceilings, roof, insulation, windows, fences, driveway, sidewalks, floors, doors, foundation, as well as the electrical and plumbing systems.

Sellers also have to note the presence of environmental hazards, walls or fences shared with adjoining landowners, any encroachment of easements, room additions or repairs made without the necessary permits or not in compliance with building codes, zoning violations, citations against the property, and lawsuits against the seller affecting the property.

Be sure to also look for settling, sliding or soil problems, and flooding or drainage problems.

If you’re buying a condominium or a home or townhouse in a development with a homeowner’s association, you must be told about covenants, codes, and restrictions or other deed restrictions, if the homeowners association has any authority over the subject property and ownership of common areas with others. Don’t be afraid to ask questions about anything that is unclear or that does not seem to be properly addressed by the forms you’re given.

How do I find a Realtor?
You can start your search for a qualified Realtor by contacting us here at Southern Maryland Real Estate Network!