How to buy the home you always wanted...without all the money you thought you needed.
Buying a home can seem like a frightening prospect, whether it's your first home, or your fifth, so much is at stake — your savings, your credit rating, and your financial freedom. It's difficult to get up the courage to sign on the dotted line, even if you really want a home.
So, how do you determine whether or not the purchase of a home makes sense? What's the easiest way to examine the whole picture, from emotions to economics?
We suggest you read this entire page before you go house hunting. You'll learn how to separate whims from your true needs. You'll discover how to prepare a game plan for your real estate venture, how to research effectively, choose wisely, finance appropriately and survive the whole procedure with your smile intact.
Seven Steps For Success:
Begin With The End In Mind. Determine how much you can afford. Find a good real estate agent to help you. Get prequalified or preapproved. Find a home that meets your needs. Make an offer to buy a home. Save as much as you can on the purchase.
Working with someone who understands lending can let you know what specific loan programs would be best for you. They can also help you understand what it takes to qualify for the loan you want. By taking a look at your financial situation and looking over your credit history, they can usually give you a good idea if you can qualify for the loan that you want. Many Lenders call this process "Prequalifying a Buyer." To be certain you can be approved for a loan, you may want to ask to be preapproved.
In the approval process, all of your documentation is completed and submitted to an underwriter. The preapproval you obtain is an actual conditional loan approval. This means that provided certain conditions are met, i.e. satisfactory property appraisal, income/asset verification, clean title history, etc. you'll qualify for a loan. Be sure to talk about the costs and time involved, as they are different for each Lender.
The next step is finding a home that also qualifies for the loan.
By the time you've done your homework and completed these suggestions, you will have an excellent overview of how to find and buy your dream home. You'll also have plenty of confidence to back up your decision to buy as well.
Step One: Begin With The End In Mind
Begin your search for a perfect home by making a careful assessment of the kind of a home you need and want. We recommend you visualize what you want and do this in writing. Take time, right now, to be as specific as you can about your particular requirements.
Step Two: Determine How Much You Can Afford
Set up a budget for yourself. Decide how much you can really afford to invest monthly for your house payment. Be realistic here. Most lenders want your payment to be no more than 40% of your total monthly income.
Step Three: Find A Good Real Estate Agent To Help You
You can learn a lot about an agent by just letting them "agent talk" to you about how they help buyers. Within a few minutes, you will probably be able to determine if their style is compatible with yours. Interview them and listen carefully to their answers. The difference between a good agent and not could mean thousands of dollars to you.
Questions for agents:
Are you knowledgeable about the area of town and price range that we are interested in? (Some agents specialize in only one area or one price range.)
Do you have the time to work with us? (This is especially important if you're on a tight deadline.) What procedure will the agent follow in working with you? How often will they update you with new property listings?
Can you represent me as my buyer's broker?
Step Four: Get Prequalified Or Preapproved
You can save yourself a lot of time and heartache by getting prequalified before you start your search for a home. Remember don't fall in love with a home you can't afford.
Step Five: Find A Home That Meets Your Needs
Some tips for successful house hunting:
Keep an organized record of all your research data. Write down comments about the homes that you see. Keep track of your likes and dislikes.
Make sure your agent is aware of your time schedule and expectations. Do you like to look at one or two homes in a session? Four? Eight? Discuss this with your agent.
Tell your agent about any homes you see that interest you and that you'd like to know more about. This includes homes you've "discovered" as you've explored the area yourself, previewed on email, or those advertised in the newspaper.
If you like to spend time driving around by yourself looking at homes, ask your agent for a list of drive-bys — homes to consider first from the outside. Your agent can make appointments later to show you the interior of those that appeal to you.
Express your likes and dislikes to your agent after you look at a home. Honest communication is essential. Many buyers are shy and afraid to tell an agent what they really think of a house. You must be straightforward about your likes and dislikes in order for an agent to do the best job for you.
Step Six: Make An Offer To Buy A Home
Your real estate agent can help you make an offer to buy the home you want. It is important to know beforehand whom your agent represents. Some agents work only for the seller. In this case the agent may not be able to advise you what a fair offer to make is. By looking at what homes are selling for in the area and how long they are taking to sell, you should be able to get a good idea of value.
Step Seven: Save As Much As You Can On The Purchase
There are only two major investments to consider when buying a home. These are the initial investment, which includes down payment and closing costs, and the monthly payment, which includes principal, interest, taxes and insurance.
Here are some ways to save on your initial investment:
Choose a low down payment loan. You do not necessarily have to put 20% or even 10% down. You can pay 5% or even 0% down on some loans.
Consider a gift of money to pay your closing costs. A blood relative, church or nonprofit organization can give you money for closing costs.
Ask the seller to pay some of your closing costs as part of your offer. Sellers are usually allowed to contribute to a buyer's closing costs.
Try not setting up impounds at the lose of escrow. Some lenders may want 12 months hazard insurance plus 6 months taxes paid at closing. It is safe but it earns no interest.
Shop around for your home owners insurance. A little shopping can save you money.
Here are a few ways to keep your monthly payments low:
Get a loan that doesn't have monthly mortgage insurance premiums. By putting 20% or more down, you can eliminate them.
Take advantage of rate lock programs that may be currently available. You can lock in a low interest rate 30-45 days in advance.
Remember that interest payments on a primary residential mortgage are fully deductible in most circumstances. Your property taxes may also be deductible. Tax rates definitely favor homeowners and you may be able to adjust your tax withholdings. Check with your CPA or tax preparer first.
Although you may feel a little overwhelmed after reading this information, these are important aspects of a very complicated process. You will need to be sure you are working with an experienced agent. Each transaction has hundreds of phone calls and binding pieces of paper that require many signatures and mistakes can be very costly.
Do you want a seasoned professional or a rookie to help you?
Happy shopping!
