The Top Ten Things to Know When Buying a Home
1. Don't
buy if you can't stay put. If you can't commit to remaining in one place
for five years or more, then owning is probably not for you, at least
not yet. With no guarantee of appreciation and the cost of buying and
selling a home, you may end up losing money if you sell any sooner than
that.
2. Start by cleaning up your credit.
Since you will most likely need to get a mortgage to buy a house, you
must make sure your credit history is as clean as possible. A few months
before you start house hunting, get copies of your credit report. Make
sure the facts are correct. Fix any problems you discover.
3. Aim for a home you can really afford.
The rule of thumb is that you can buy housing that runs about two-and-one-half
times your annual salary.
4. Don't worry if you can't put down
the usual 20 percent.
There are a variety of public and private lenders who, if you qualify,
offer low-interest mortgages that require a down payment as small as three
percent of the purchase price.
5. Buy in a district with good schools.
This advice applies even if you don't--and--won't--have school age children.
Reason: when it comes time to sell, you'll learn that strong school districts
are a top priority for many home buyers, thus helping to boost property
values.
6. Get professional help. Even though
the newspapers give buyers unprecedented access to homes, it's still a
good idea to use an agent, look for an exclusive buyer's agent like Equity
House Financial, who will have your interests at heart and can help you
with strategies during the bidding process.
7. Find a balance between points and
interest rate. When picking a mortgage, you usually have the option of
paying additional points--a portion of the interest that you pay at closing
-- in exchange for a lower interest rate.
If you stay in the house for a long time -- say five to seven years or
more -- it's usually a better deal to take the points. The lower interest
rate will save you more in the long run.
8. When house hunting, bring your
camera or at least a notebook to jot down reminders, since after you look
at a half-dozen or so houses the details begin to blur in your mind.
Best choice would either be an electronic camera that lets you take notes
right on the image, or a Polaroid so that you can scribble comments on
the margins.
9. Do your homework
before an offer. Your opening offer should be based on sales trend of
similar homes in the neighborhood. So before making it, consider sales
of similar homes in the last three months. If homes have recently sold
at five percent less than the asking price, you should make a offer that's
about eight to ten percent lower than what the seller is asking.
10. Hire a home inspector. Sure, your
lender will require a home appraisal anyway. But that's just the bank's
way of determining whether the house is worth the price you've agreed
to pay.
Separately, you should hire your own home inspector -- preferably an engineer
with experience in doing home inspections and serves in the area where
you are buying. His or her job will be to point out potential problems.
Know the Market Median home price. The median home price gives you the
midpoint in the range of sales prices for a specified period. Compare
over the past several years to see whether prices are rising or falling
in the overall market and specific areas.
Number of home sales.
The number of home sales indicate the number of homes sold in a specific
period. Compare over the past several years to see whether this number
is rising or falling. Generally the more active the market, the higher
the number of homes sold. Average days on the market.
The average days on the market measures the length of time most homes
were for sale before purchase. Compare over the past several years to
see whether this number is rising or falling. If the average is high,
it can mean a slow (buyers) market or indicate a neighborhood where houses
are hard to resell.
Once
you find the home you want, you need to move quickly to make your offer.
If you're working with a buyer's broker, then get advice from him or her
on a initial offer.
If you're working with a seller's agent, devise the strategy yourself.
Try to line up data on at least three homes that have sold recently in
the neighborhood (your buyer's broker will help).
Calculate the difference between the original list price and the final
price of the homes sold. If the average difference is, say, five percent
below the asking price, then you know you can make an offer eight percent
to ten percent below, leaving yourself a little room to negotiate.
Do not low ball (that is , submit a offer that's twenty five percent or
more below the list). The seller is likely to give up in disgust. Another
factor in determining your offer is whether the trend in recent sales
is up or down over the past year.
For instance, if homes a year ago were selling for ten percent below list,
and recent sales are going at list, then you might want to tighten your
opening offer to just five percent below list. There's no foolproof system
for negotiating a fair price. Occasionally it's ok to deal directly with
the seller yourself. More often it's better to work exclusively through
intermediaries like buyers brokers.
In general, don't let the other side begin to believe you are negotiating
in bad faith. Any deal you eventually reach has to involve trust on both
sides. And be creative about ways to satisfy the sellers needs. For instance,
ask your buyers agent if the seller would throw in appliances if you meet
his offer.
Remember that your leverage depends on the pace of the market. In a slow
market, you have muscle; in a hot market, you may have none at all. Once
you reach a mutually acceptable price, your agent will complete the contract.
Make sure the deal is contingent upon 1. your obtaining a mortgage; 2.
a home inspection and 3. a guarantee that you may conduct a walk through
inspection 24 hours before closing. Now call your mortgage broker at Equity
House Financial and move quickly.
This is when you will decide whether to go with a fixed rate or adjustable
rate mortgage and whether to pay points. Expect to pay about $60 for a
credit report and another $275 for an appraisal of the home. Most other
fees will be due at closing. If you don't have one, look into a homeowner's
insurance policy. Ask for recommendations from friends, your mortgage
broker or your real estate agent. In addition you should hire a home inspector.
Again ask for referrals. An inspection costs about $200 to $350 and takes
about 3 hours. Ask to be present, because you will learn a lot about your
home, including its overall condition.
If the inspector turns up major problems, ask your real estate agent to
discuss it with the seller. You may want the seller to repair the item
or you may decide to cancel the contract. About two days before closing,
you will receive a final HUD settlement statement from your lender that
lists all the charges you can expect to pay at closing.
Review it carefully with your mortgage broker. It will include things
like the cost of title insurance that protects you and the lender from
any claims someone may make regarding ownership of your property. After
all the rigmarole, the actual closing -- nerve wracking though it may
be -- is often somewhat anticlimactic. It's a ritual affair, with customs
that differ by region. Your mortgage broker or real estate agent can brief
you on the particulars. In essence, once you sign all the settlement papers,
you then sign a note that commits you to repaying your loan.
Next you will sign the mortgage. Once the title agent hands the seller
the check, he hands you the keys to your new home. One additional item
you may look into is a mortgage protection plan. A mortgage protection
plan would protect your family against an untimely accident to yourself.
Again ask for referrals from friends or your mortgage broker.