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Real Estate 411

8 Vital Tips To Make The Best Buying Choice

1. Start Saving Up!
Buying a home is no small feat or expense. For a conventional loan it is common to put down anywhere from 10%-20% of the purchase price. In addition to conventional loans there are FHA loans and first time buyer programs which allow buyers to put down a much smaller down payment, sometimes as little as 3.5%. Putting down less than 20% means you will have to pay for private mortgage insurance which will bring your monthly payments up. In addition to down payments, a general rule of thumb for closing costs is 3-5% of the purchase price. For example, if you purchase a $200,000 home with an FHA loan at a 3.5% down payment, you can expect to spend about $13,000-$17,000 in total costs.
A few good tips to start saving for your next or first home purchase is to set aside any work bonuses or tax returns, open a new bank account that gets a weekly direct deposit of 5%-10% from your current income, stop eating out, start cutting back where possible, and create a monthly budget that allows you to track your progress to see where you can improve.
2. “Don’t bite off more than you can chew!”
Just because you have been pre-approved for a $500,000 mortgage doesn’t necessarily mean you should buy a $500,000 home. Look at your pre-approval amount as the ceiling or the max of what you can afford. A higher mortgage amount means a higher monthly payment too. Interest rates are still extremely low and lending institutions these days have a plethora of capital they need to lend. These factors combine to result in higher dollar amounts for mortgage approval. So don’t fall into the trap of buying a home that is out of your living means just because the bank will finance it for you. Living within your means will allow you to set aside some additional money that can go towards unexpected costs that will undoubtedly arise after you purchase a home.
3. Get Familiar
An important part of buying a home is scouting the neighborhood beforehand. Sometimes buyers get so excited about moving into a certain house that they forget to do their due diligence on the actual neighborhood. If you find a home you like, it would be wise to go walk the streets at a few different times during the day, maybe around midday, dinnertime, and then evening to see if you feel comfortable being there. What if you view a home at 10am, walk around the area, fall in love and purchase the home only to discover traffic backs up down your street everyday at school drop off and pick up time? This may seem like a minor issue, but for people with busy schedules the added daily hassle could be a nightmare. Bottom line is this – do ALL of your homework, not just on the house but on the neighborhood as well. And while you’re at it, it might be worthwhile to scout your neighbors.
4. It Can Be An Emotional Roller-coaster
Home-buying is an emotional process. Ideally, you should set aside all your emotions when evaluating when evaluating a house. Practically, that is impossible. Instead, make a checklist of your must-haves, nice-to-haves and other essentials. Then print copies of this checklist. Every time you visit a home, take the checklist along with you; take photographs so you can cross each items off your list. If you fall in love with the house and your checklist shows that the house has none of your must-haves, it will at least make you pause and think twice about what you truly need.
5. Think Ahead…
It is easy to look at properties that meet your current needs. But if you plan to start or expand your family, it may be preferable to buy a larger home you can grow into. Consider your future needs and wants and whether this home will suit them. You can also consider looking for a home that you could always add to later. If you are buying a 3 bedroom home and you think you’ll someday need a 4th bedroom, either for a child or an in-law, look at homes that have basements that can be finished or converted to another bedroom. A benefit of creating more usable space such as another bedroom is that it will in turn add value to your property, which means for equity for you
6. All Things Considered…
When budgeting for your next home purchase, don’t stop with principal, interest, taxes and insurance.m; add in utilities, cost of commuting and upgrades. Call the utility companies that service the house you are considering and ask for an estimate of what the cost will be, whether there are any budget plans, etc. Many times you can ask the seller what their bills usually run them a month to get a better idea. Will the gas budget for your car go up if you are moving further away from the places you frequently visit? This is one aspect that most buyers don’t even consider when purchasing a home. Also, don’t forget to put some money aside for future repairs because with most fail, once you buy a new home, something will go wrong within the first year. Budget all of these expenses and see if you can still afford the house!
7. Stay Ready!
Especially in this current market, it is important to be ready to quickly make a strong offer when you find a home that you love. Having a solid offer with a sufficient due diligence and earnest money deposit can separate you from the pack and land you the deal in a multiple offer situation. I believe that a strong deposit is roughly 2-3% of the offer price. So if you plan to make a $300,000 offer I would encourage you to give a deposit of $6000-$9000. Strong offers accompanied by a strong deposit speak volumes to agents and to sellers and shows that you are a serious buyer who can execute. Along with your offer you should also include a pre-approval letter/proof of funds statement. This statement gives a run down of your financial situation and shows the seller that you are well qualified to purchase their home. In a multiple offer situation the seller will sometimes take a lower offer if the buyer submitting that offer has a more appealing deposit, provides a pre-approval, and can close more quickly. Sellers do not want to risk wasting time by going into escrow with a buyer who ultimately can’t follow through with the purchase. Therefore, presenting yourself as a serious and capable buyer makes you and your offer more appealing to sellers.
8. Proper Representation Matters
It is absolutely necessary to find the right agent that will you find your dream home. When choosing an agent, find one that is knowledgeable, trustworthy, and most important someone that you like. While you may be able to hire the most experienced agent in the area, if your personalities clash he or she may not be the right fit for you. Keep in mind you will most likely be spending several hours with this person touring homes, discussing personal details of your finances and you will be trusting them with one of the biggest purchases of your life. Therefore, before signing a contract it is important to sit down and get to know the agent on a professional and personal level.