Buying a home is an exciting yet very stressful time. It is the largest investment you will make in your lifetime (outside of investments). You want to make sure you have all of your ducks in a row. When fully prepared you can make this a very enjoyable process. Here are some tips that will hopefully get you there:
ARE YOU READY TO BUY A HOUSE?
How do you know you are ready to make that leap to purchasing a house? This is not a decision that should me made lightly. You do not want to put yourself in a position where you buy your dream home and default 3 years later. Here are some tips to know you are ready to purchase a home:
• Have you saved up enough money for your down payment AND closing costs? Your down payment will be at the least 3% for FHA loans and could be more, a good number to see if you are ready is about 7%-10% down. Your closing costs can range from around 3%-5% of the purchase price. If you do not have that money in the bank, you need to work on your budget until that is there. Don’t feel the need to be “Pressured” into buying a house just because your sister or friend did. Make sure the situation is right.
• Is your job secure? Now, we all know in todays world that there is no such thing as Job Security right? But have you been in your job for a few years? Have they been making cut-backs? Is the company doing well? Your job is your main qualifier for your mortgage, make sure you are secure enough to move forward.
• Do you have an emergency fund saved up? When owning a house, you are responsible for EVERYTHING, the landlord that fixed that hot water heater is now YOU! Make sure when you get ready to purchase a home that you have some money in reserve as “Emergency” in case something happens in your home.
Ok, now that you determined that you are ready to purchase a home, you need to find a bank and get pre-qualified before you ever start looking for a house. The worst thing you can do is start looking for houses, find one that you absolutely fall in love with, and find out you do not qualify to purchase it. To get a good mortgage broker, ask around, talk to people you know who just got done purchasing a house. Ask what they liked best about that person, what they didn’t like, would they recommend them.
- Once you find a mortgage broker be prepared to bring in the following items to help expedite the process:
- Last two paystubs
- Last 2 to 3 tax returns
- Rent receipts if you are renting
- Year-to-Date Profit and Loss Statement (for self employed)
- Corporate or Partnership tax returns (if you own more than 25% of the business)
- Pension Award letter (for retired individuals)
- Social Security Award letters (for those on Social Security)
- Credit Items
- Landlord's name, address, and phone number (if you rent – for verification of rental)
- Explanations for any of the following items which may appear on your credit report:
- Late payments
- Credit inquiries in the last 90 days
- Copy of bankruptcy papers if you have filed bankruptcy within the last seven years
Once you get pre-qualified let me give you some advice that unfortunately people rarely accept. If you are getting qualified under you and your spouse’s income. Do not, I repeat, DO NOT BUY A HOME that is at the top of your approval. For example, if you qualify for $250,000 on both incomes, you may want to look around the $200k-$225k. Be cautious just in case one spouse loses their job. If that happens you want to be able to afford your mortgage off of one income and possibly some unemployment. Do not let a Realtor “Bully” you into buying at the top of your range.
FIND A REALTOR
Again when searching for a realtor, ask around, interview a few different agents. This is absolutely IMPERATIVE: If you are driving around and love a house, and it fits your criteria, DO NOT CALL the agent on the sign. They have a fiduciary agreement to represent the seller of that house, you need to make sure you find what they call a “Buyer’s Agent”. A “Buyer’s Agent” is someone who works specifically and solely on YOUR behalf as the buyer.
Have a list of things you are looking for in a house. Make sure that your list has some things you are willing to live without and some things you just HAVE to have. There is never that “PERFECT” house so set your expectations accordingly.
When you meet with you agent, make it very clear your list of items you want. The minute your agent starts showing you houses that have nothing to with your list, or in an area you didn’t want, or even one that is trying to push your budget up, thank them for your time and move on.
My recommendation is to NOT sign a contract when using an agent to “PURCHASE” a home. In all my years of real estate I have never had my buyers sign an agreement with me. When you sign a representation agreement with an agent, you have to use that agent even if they are not working out. My belief is that in our industry we should “earn” your business. On the same note, if you have an agent working hard for you, do not go “around” them and sign an offer at an Open House. Make sure you are just as loyal as your broker is to you.
I FOUND A HOUSE NOW WHAT?
Stalk the neighborhood prior to making an offer. See how the neighbors are in the evening. Drive by the house at all hours of the day to see what’s happening in the neighborhood. Do your regular commute from that house in the morning.
Now if you love the house, try to take care of this as soon as possible so no one else makes a move on an offer. If you are satisfied, call your agent to write up the offer. You are now ready to start negotiating!
Do your research. See what other houses in the area are going for, take a look at the last 3 months. Don’t be a cheapskate! If you offer a ridiculously low price, the seller may not even counter back. Your offer should be based on 2 things. First, how much you are approved for (we spoke about that earlier), and what you feel the house is worth.
Hire a Home Inspector. Yes this is a little bit of money out of your pocket, but it is the best money you can spend prior to closing on your house. If you choose to move forward without an inspection, and 4 months after you close you find out there are termites throughout the house, too bad. You are stuck with it. Spend the little amount up front so you don’t spend a lot later!
Be prepared to sign a ton of documents. The closing will take anywhere from 45 minutes to 2 hours depending on the closer and the type of loan you are getting. Make sure to bring your driver’s license or current ID to the closing as well as your down payment and closing costs. Typically they want a bank check for that amount not a personal check. Your mortgage broker will give you that amount prior to closing.
CONGRATULATIONS ON YOUR NEW HOME!
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