Six-step Smooth Home Purchase

Buying a home can be an emotional, time-consuming, and complex process. There are a few things that you can do to help make the process go as smooth as possible.

1. Check your credit.
Before you apply for a home loan, regardless of your credit, it's a smart idea to obtain a copy of your credit report from the three major credit bureaus and review the information. If there are errors or things that need to be addressed, it's easier to address them before you have found a house, than after you have found a house and are trying to close your loan.

If you know that there are a few blemishes on your credit, let your lender know what they are, why they are there, and why you are a still good credit risk. Lenders look at your credit to determine how likely you will pay back the loan. If you had extenuating circumstances - like a loss of a job or medical bills - let them know so that they understand that it is not likely to happen again in the future.

2. Get approved before you buy.
An approval means that a lender has reviewed your credit history, verified your assets and employment, and has approved your loan before you have found a home to purchase. As long as the home appraises for at least the purchase price, the loan should close.

Getting approved also gives you an advantage over other buyers. Your commitment letter from the bank makes it easier for you to negotiate on the price of a home, than a person who is not pre-qualified.

While getting pre-qualified may sound official, it is really just getting an idea of what you can afford. Its having a person plug in a few numbers that you give them - your monthly income and your monthly debt - and getting an ap-proximate payment calculated. From the payment, the calculator can approximate the house price range that you can afford. No information is verified. Because your assets, income or credit is not verified, a pre-qualification has little value when purchasing a home.

3. Find a great buyer's agent.
When you are not working with a buyer's agent, real estate agents who represent the sellers in a transaction are less likely to negotiate the best price or contingencies for you. Moreover, you have no idea if the seller's house is one of the many real estate listings on the market that is over-priced.

A buyer's agent's job and fiduciary responsibility (meaning legal duty) is to you, the buyer. Before working with an agent, establish if they are a buyer's agent or a seller's agent. After spending a lot of time with a Realtor, it's natural to feel like you're a team. But if they are not negotiating for you, then they are not on your team.

4. Learn about the neighborhood.
Often times the house you find may be in a neighborhood that you're not familiar with, which is ok. It just means that you'll have to do a little more research. If you find a house that you like, ask for a list of the neighborhood properties that sold in the last year. How does your home rank? Is it at the top of the price range? If so, it might be hard to resell. Is it average or on the low end? If so, great - as the other home prices go up in value, they will pull your home's value up as well. Check out the schools - are they sought after? A good school district means your neighborhood will always be valued by families which is a great reassurance to purchase, not to mention the value-add if you have school-age children. Obtain crime statistics and demographics. Are they acceptable to you? Talk to the neighbors. The more people you talk to, the better sense you will get of who makes up the neighborhood and how they will effect your time spent in it. Check out the location of the shopping, police and fire stations, schools, and air traffic overhead. These are all things that might affect your property value or quality of your life.

5. Protect Yourself.
Ask your Realtor for a copy of the documents you will be asked to sign if you decide to buy the house. Read them ahead of time so that you'll understand the questions that you will be asked, the things you need to know, and the decisions you will need to make.

6.) Have reasonable expectations.
There is a lot of money at stake. No house is perfect. Understanding and remembering these two statements will help diffuse the negotiation stage, the inspection stage and the closing stage. Emotions are high for both buyers and sellers - The seller may have loving memories and years of sweat equity in the house. Maybe they are being relocated and don't want to go. Understanding their motivations for selling will help you appreciate their situation and predicament during these emotional times.

There is a lot of money at stake for all the parties involved (and that includes the realtors) - Just remember that market value (the value of a home) is the price that a willing buyer and a willing seller can agree to. If you can not agree on a price, ask yourself:

  • Is there something you missed?
  • Are there comparables that support the price that they want?
  • Are there motivations that might factor into the price they are demanding?
  • In the end, does it matter?
  • What is the house worth to you today and what do you think you can reasonably sell it for based on the amount of time you plan to spend in it?

Think about the answers to those questions before you make your move. No house is perfect - Always get an inspection. It might be a few hundred dollars, but it's worth it. It's the inspector's job to find any problems with the house that could cost you thousands to repair down the road. Some inspectors have a tendency to over play the importance of their role and the items that they find. Get objective opinions that you trust before making a decision on an inspection report. Likewise, if an inspector says a foundation is cracked but its nothing to worry about - get a second opinion. Ask a handyman for an idea of how much repairs will cost and how compli-cated they are.

The home buying process is an emotional, complex and time-consuming process, but it is worth it. Nothing compares to owning your own home in a neighborhood that you chose.

 

Buying Your First Home

With mortgage rates as low as they are, many renters are thinking about purchasing a home of their own. Several factors should be considered when purchasing a home.

How long you plan to live in the home?
If you purchase a home and get a job transfer or decide to move after only a short time, the value of your home may not have appreciated enough to cover the costs that you paid to buy the home and the costs that it would take you to sell your home. The length of time that it will take to cover those costs depends on various economic factors in the area of the home. Most parts of the country have an average of 5% appreciation per year. In this case, you should plan to stay in your home about 3 years to cover buying and selling costs. If the area you buy your home in experiences an economic up-turn, the length of the time to cover these costs will be shorter, and the opposite is also true. Your Realtor can guide you to choosing communities with good resale value if a job transfer is in your future.

How long the home will meet your needs
What features do you require in a home and community to satisfy your lifestyle now? Five years from now? Depending on how long you plan to stay in your home, does the community have the amenities that you need and will the home be large enough if your family grows? Could the basement be turned into a den and extra bedrooms? Having an idea of what you need now and in the future will help you find a home that will satisfy you for years.

Your financial health - your credit and home affordability
Is now the right time financially for you to buy a home? Would you rate your financial picture as healthy? Is your credit good? While you can always find a lender to lend you money, solid lenders are more skeptical if your credit history is not good. Generally, a couple of blemishes on a credit report will make you a good credit risk and could qualify you for the lowest interest rates. If you have more than a couple of blemishes on your report, lenders may still provide you with a loan, but you might have to pay a higher interest rate and fees.

Some say that you should refrain from borrowing as much as you qualify for because it is wiser not to stretch your financial boundaries. The other school of thought says you should stretch to buy as much home as you can afford, because with regular pay raises and increased earning potential, the big payment today will seem like less of a pay-ment tomorrow. This is a decision only you can make. Are you in a position where you expect to make more money soon? Would you rather be conservative and fairly certain that you can make your payment without stretching finan-cially? Make sure that whatever you do, it's within your comfort zone.

To determine how much home you can afford, talk to a lender, ask me for a referral to a mortgage specialist or go to my mortgage calculator. Good calculators will give you a range of what you may qualify for. Lenders today are making loans customized to a particular person's situation. Your monthly housing costs can't exceed 32 percent of your income and your total debt load together with your housing costs can't exceed 40 percent of your total monthly income. It’s important for you to know your options.

Where the money for the transaction will come from
Typically homebuyers will need some money for a down payment and closing costs. However, with today's broad range of loan options, having a lot of money saved is not always necessary - if you can prove that you are a good financial risk to a lender. Moreover, you could also look at homes/condos with assumable mortgages. If your credit isn't stellar but you have managed to save 10-20% for a down payment, you will still appear to be a very good finan-cial risk to a lender. If you have excellent credit, you may qualify for zero-down. However, interest rates are higher.

The ongoing costs of home ownership
Maintenance, improvements, taxes and insurance are all costs that are added to a monthly house payment. If you buy a condominium, townhouse or a home in one of the newer communities, a monthly homeowner's association fee might be required. If these additional costs are a concern, you can make choices to lower or avoid these fees. Be sure to inform your realtor your desire to limit these costs.

If you are still unsure if you should buy a home after making these considerations, you may want to consult with an accountant or financial planner to help you assess how a home purchase fits into your overall financial goals.