November 13th, 2015 6:56 AM by Jackie A. Graves, President
Don't take this purchase lightly.
For most of us, buying a home
is the biggest purchase of our lives — and the process is far from simple.
Here are nine steps to take to
make sure the home you buy is one you can afford:
Start by checking your credit
score. "The higher your score, the better the interest rate on your
mortgage will be," writes Ramit Sethi in "I Will Teach You To Be Rich." Good
credit can mean significantly lower monthly payments, so if your score is not
great, consider delaying this big purchase until you've built up your credit.
As for monthly payments,
personal finance experts say a good rule of thumb is to make sure make sure the
total monthly payment doesn't consume more than 30% of your take-home pay.
It's also to your advantage to
plan on being in this home for a while — at least 10 years, Sethi recommends.
"The longer you stay in your house, the more you save," he explains.
"If you sell through a traditional realtor, you pay that person a huge fee
— usually 6% of the selling price. Divide that by just a few years, and it hits
you a lot harder than if you had held the house for ten or twenty years."
Not to mention, moving costs can be insanely high.
Technically, you don't always
have to put any money down when financing a home today, but if you can't afford
to put at least 10% down, you may want to reconsider buying, says Sethi.
Ideally, you'll be able to put
20% down — anything lower and you will have to pay for private mortgage insurance (PMI), which is a
safety net for the bank in case you fail to make your payments. PMI can cost
between 0.3% and 1.50% of mortgage, depending on the size of your down payment
and your credit score.
Ideally, you'll be able to make a 20% down payment.
Even if you can afford the
monthly payment, be aware of hidden costs. Buying a home means property taxes,
insurance, and maintenance fees that can add hundreds of dollars per month.
Check out the New York Times'
"Is It Better to Rent or Buy?" calculator,
which factors in things such as maintenance, renovations, closing costs, taxes,
inflation, and cost of buying and selling, to help you decide whether renting
or buying makes the most sense for you.
Once you've aligned your
finances and have decided investing in a home is feasible, determine how much
you can afford to spend and stick to that limit.
David Walker and Philip
Lang, cofounders of full-service real estate brokerage TripleMint, recommend
getting a pre-qualification letter from a mortgage lender before house hunting,
which demonstrates to you, your realtor, and to sellers how much you can
afford. When considering multiple offers, sellers will likely make an offer to
those with a pre-qualification letter before those without one.
To apply for pre-qualification,
you'll have to find a lender — either the bank or a mortgage broker. Compare offerings from the bank and a few mortgage
brokers before settling on the right lender for you. Remember,
though: You don't have to spend every cent for which you're approved. It's generally
good practice to aim for a home that costs less than the maximum amount for
which you qualify.
Find a realtor who understands what you're looking for.
"Look for a real estate
agent who aligns with your goals. That's going to yield the best results for
you," emphasizes Walker.
"If you're an investor buying an investment property, you might be looking
for a different personality trait and a different type of agent than if you're
buying a primary home and the most important thing is school district."
Meshing with your agent, and
making sure they understand your needs, can pay large dividends in the long
run. "We've seen huge success with agents who are paid in bonus based on
client satisfaction and not just commission. It completely changes the
dynamic," says Walker. "Find a real estate agent that puts client
satisfaction as the top priority."
You're going to be spending a
lot of time with them, so it pays to put in the time and effort to find the
right agent. Reach out to friends for recommendations, and interview several
options over coffee to determine their level of experience and expertise in the
neighborhoods you're interested in.
Put in the time and effort to find the best real estate agent
Start off by determining your
general needs — where you want to live, how many bedrooms and bathrooms you
need, and certain school zones you're trying to be in.
Then, become your own expert,
says Lang: "Technology has empowered people like never before to do a
lot of the searching online, and to really understand the market before
actually going out in person. For the type of person who's really active in
their search, it has never been a better time to find a home. The data is out
there. You can really become your own expert on the market and the
Zillow.com provides homes prices all over
the US, and Insure.com will
give you home insurance quotes and let you comparison shop.
Also, check for perks with the
government and your employer. Many states offer benefits if you're a first-time home buyer, and
some employers will offer special lower rates for first-time buyers.
Don't be fooled by photos,
Walker and Lang emphasize. If you see photos of an apartment or home and the
blinds are closed, chances are the view is not great, they explain.
Additionally, certain camera lenses can make spaces look much bigger than they
"A floor plan never
lies," says Walker. "When you're buying, you're going to make that
space your own, so it's important that the floor plan and layout — the physical
space — works for you."
If it will work, then take the
time to go out and look at properties in person.
Don't put in an offer unless you're positive it's the one.
You want to make sure the home
meets your basic requirements before putting in an offer. "Buying a home
is a very emotional process," warns Lang. "It's important to remain
rational and stick with your price limit while buying. A lot of times people
get caught up in bidding wars, and will go way over what their price needs to
be because they love the house so much."
Don't just put in an offer
because you're emotionally drained and desperate to finish the process. Expect
to miss out on a few homes before you find the one, Walker and Lang say. While
you may find your dream home within weeks, it also could take up to six months
or more — prepare for a lengthy and exhausting process.
If you've found the right one,
make your bid quickly. There may not be much room to negotiate or drive the price
down, as you'll likely be facing competing offers. "What people are
competing on is who is most qualified to buy it," explains Lang.
"It's not always the highest price offer that gets accepted. Sellers are
really looking for certainty of close, so if you can provide the most certainty
of close to that seller, they're more likely to accept your offer."
If the seller accepts your
offer, you will enter contract before closing, and the deal will be contingent
upon you securing a loan with your lender, getting the home inspected, and
doing a walk-through inspection 24 hours before closing.
Be prepared for closing
costs such as
appraisal fees, attorney fees, title insurance, property transfer taxes, and
inspection fees, which can add up to be about 5% of the mortgage amount.
Closing customs will vary
depending on the state you're buying in, which your real estate agent or lawyer
will be able to explain to you.
By Kathleen Elkins – To view
the original article click here