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As I found out, buying a house can be one of the most stressful events of any person's life. It is definitely not something that you want to take lightly. So here are a few tips that I give to you on what you should do when considering
the purchase of a home.
-
Find out what your price range is before you see a lender. A general rule of thumb is that you can afford a house that is two and 1/2 times what your yearly net income is. This is of course going to differ according to your credit
qualifications.
- Make sure that you
have enough money in the bank. Even if you are going to go
the FHA route, you are still going to need money for
closing costs. Do not get tempted with the idea of
financing your closing costs. This just delays any
of your payments actually going towards your new home.
- Read the papers
and listen for ads regarding interest rates. Not
all mortgage companies give the same rates. If you
already have an agent, talk to him/her and see if they
work with a broker who may be able to get you a decent
interest rate.
- If you can, get pre-qualified for a loan. This gives you, the buyer, a lot more leverage when it comes to negotiating a price on a home. You will also find that some people will sign a contract with you for less than with other people for more just because you are
pre-approved.
- Once you have loan commitment, lock down your interest rates as soon as possible. Generally speaking, interest rates will slowly go up, and unless your lender thinks that the rates are going to start going down before you close, lock into an interest rate quickly.
- Choose your agent wisely. Many agents will want you to sign an agent contract for 60+ days so that you can only work with them. They may say that they have to, to be able to represent you, so that they can push you into this. If you want to try out an agent and they insist on a contract, sign a contract for two weeks. This gives them two weeks to show you what they got without you making a long term commitment.
- See if you can get the seller to pay any of your closing costs. In some cases you can get the seller to agree to pay a percentage of the price of the house towards closing costs. This is good if you are afraid that you will not have enough money to be able to close. This can be written into the
contract.
- . This is one of the most important things that you can do. This will protect you, and can give you an out of the contract if there is a major problem with the house. Also include on the contract that the house must pass inspection.
- Be prepared. I know this sounds general and lame, but you will probably get calls out of the blue stating that your lender needs more bank statements or some sort of verification. This is their way of covering their ass, and is a big pain in the ass for you. You may want to start a file for buying a house and keep copies of your bank statements and income tax returns with you.
- If interest rates are high, you may want to consider an ARM loan. Most ARM loans start rather low in regards to the interest rate and can only go up a maximum of 1 percent a year. Generally speaking, ARM loans can get you started at a lower interest rate and after two or three years on it, you can refinance on to a fixed interest rate when the time is right.
- When looking for financing, ask everyone you know who has recently purchased. Sometimes
a broker, Credit Union, or small finance company can get you a better interest rate than a bank or the larger finance companies. With my own personal experience and those of my friends and relatives, I have found that if you go with a smaller company or
broker they generally give better service, but this is not always the case.
- Choose your loan type
wisely. Some lenders will offer 107% or 103% loans so there is no
money out of pocket. The problem with this is, that you will being
paying on the loan for at least 5 years before you start paying on the
principal. If you cannot put down 20% for a conventional
loan, you can go with an FHA loan, but remember you will have the added
costs of a monthly HUD payment and mortgage insurance which is included
in your monthly mortgage payment.
- If you are handy around
the house and have the time, you may want to purchase a fixer-upper.
If you can find a house that needs work, but is livable, you may be able
to get a really good price on it and fix it up as you have the money to
do so. The advantage with this is that when you go to sell, the
house is worth more now than when you bought it, so you will have
increased your equity, making it easier to get your next home loan.
- Make sure that you
have extra money in the bank for those move in
expenses. There are always things that you do not
think of that you will have to purchase (curtains,
refrigerator, stove, movers, etc.). If you can,
you may be able to get some items included in the sale
of the house and start being friendly with that acquaintance
that owns a truck. It could save you a lot of
money up front.
- If at all
possible, try to avoid closing on the end of the month.
I know from personal experience that since is one of the
busiest times of the month, it can delay the needed wire
transfers and possibly delay the closing of your home.
- Choose your
title company wisely. Many of your real estate and
lending agencies have preferred vendors that they work
with. Get their list and price them. Shop
around too. If you are willing to drive a little
bit, you may find that their is a title company that can
save you a couple of hundred dollars by choosing them over
someone else. If you find one that sounds too good
to be true, it probably is. Even if you do not
choose the one your lender or real estate agency generally
uses, ask their opinion, most good realtors will give it
to you.
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