Before You Sign Mortgage Papers, Know the Facts
First-time home buyers can find themselves bogged down hopelessly in a sea for facts, figures, statistics, competitive advertising jargon and who knows what all else. That argues for a thoughtful preliminary process that will ensure that you go into what likely will be one of the most important purchases of your life. A clear vision of what you really want in a home, what you can realistically afford and what portion of your earning power and your time you want to dedicate to home ownership should guide your ultimate decision.
Obviously, if more than one person is to be affected in the process, a thorough discussion of every detail is essential. Don’t give anyone else the opportunity for “I told you so’s.”
Start with the question: Do we really want to do this? If there is some doubt that you will remain in the location where you want to buy, home ownership may not be for you. Up-front costs tend to skew the figures mostly in the first few years. If you are not likely to pass that point, you could end up losing money if you relocate. Since no crystal ball has yet been invented to forecast every twist and turn in a society that is prone to make life changes, there is no way to assure the future. But don’t overlook the obvious.
Maintain A Good Credit Rating
Be sure before you make any moves that your credit rating is as healthy as possible. A few months before you want to start looking, get a copy of your credit data and be certain it is correct. Resolve problems before you start any discussion of money so that they don’t become part of what is already an onerous process.
Know What You Can Afford
Be realistic about what you can afford. The usual advice is that you can afford a home two and a half times your annual income. But there are plenty of variables, such as how much debt you are carrying going into the home purchasing routine and whether your income is likely to stay on track. If Mom decides post-purchase to stay home to raise children, how will that affect your bottom line? Online “calculators” are available to help you picture your personal finances relative to what your home will cost you.
Determine Your Down Payment
Find out up front how much you will have to produce for a down payment. You may well qualify for a loan requiring 20 percent down or less. Many private and public lenders offer homes with a down payment as small as 3 percent. Study your options carefully before making a decision, and remember all of the up-front money issues before you are into the actual purchase mode.
Choose A Good Neighborhood
Many factors will affect your decision on where to locate. But as a rule of thumb, areas that have good schools have several advantages. Even if you don’t have children in school who would benefit from such a location, it is a fact known to Realtors all across the country that re-selling in such a neighborhood is enhanced, since that is one of the factors many people include on their “where to live” wish lists, a feature that boosts property values.
Use A Real Estate Professional
When you get serious, involve a professional. Despite all the readily available resources online, there are details that might slip past you that a professional would recognize. Don’t look for the busiest, look for the one who will keep your interests foremost as serious negotiations begin.
Understand the difference between points and rates. When you are selecting a mortgage, you may be offered the option of paying points. That means you pay at the beginning some of the interest that you will be required to pay at closing, in exchange for a lower interest rate. If you expect to be in the home for three to five years, the points may be the better deal. A lower interest rate will save you more over the term of the mortgage.
Getting pre-approved may save you the hassle of looking at properties you can’t afford, only to be disappointed. You will be in a better position to make a valid offer if you do find the property that is just right. Pre-approval is different from pre-qualification, which is based on just a cursory review of your financial data. Pre-approval goes deeper into your income, debt and credit history.
Make a study of recent sales in your desired neighborhood before making a bid. Look at the past three months and if homes have been selling at 5 percent or so under the asking price, make a bid that is 8-to-10 percent below the listed price.
Hire a home inspector aside from the home appraiser the lender will require anyway. An engineer with experience in doing home inspections would be best, especially if he has experience in the area where you plan to buy. He likely will be aware of existing problems in the neighborhood, if any, and be able to alert you to potential problems that could rack up expensive repairs in the future.
There. Ready? Get set and go find the house of your dreams!