Tips for buying a house
Being in the market for a new home is an exciting and at the same time stressful time. There are so many things that can go wrong and too many steps to take on your own. First time home buyers are especially at risk for making a mistake they may regret for years to come. Whether it’s your first time buying a house or not, below are our tips for buying a house to help get you started on the right track.
- Before you begin your search for the perfect house, you must first establish two very important factors that play a big role. You must determine your credit score and set a budget you can afford.
- Request your current credit score from all three major credit agencies. They are very detailed in all of your past and present credit factors. Your credit score and history will ultimately determine whether you are a low or high-risk candidate for a mortgage loan. A low credit score will hurt your chances for getting the best interest rate and may prohibit you from getting a loan all together. Thoroughly go over your credit reports and stay on guard for errors, as they are common. If you happen to find any, contact the agency immediately, as it may take several months to resolve them.
- Determine how much you can afford. Are you in significant debt or is everything paid off? When calculating your budget, you must take into account not just the monthly mortgage payments but also other expenses such as property taxes, utilities, potential repairs, and maintenance. Don’t forget the down payment and closing costs as well. Most lenders like to see 20% of the home’s price as a down payment, anything less may make it harder to get loan. Don’t underestimate the closing costs, as they can easily add up to more than $10,000.
- Keep in mind that the lender will also look at your outstanding debt. If you have significant credit card debt, you are advised to pay off as much of it as possible before going to see a lender for a loan. Ask to be pre-approved by a potential lender to determine the kind of loan that may be available to you. The lender goes over all of your financial information and determines how much you can afford and how much they are able to lend you.
- Do not make any big purchases at least a couple of months before buying a house. Such purchases may affect your credit score/report and significantly lower your income to debt ratio. Lenders need to see that you are reliable and able to cover all of your monthly bills. Your potential lender will request a full paper trail for the prior months. Bottom line is do not hinder your chances of getting a loan by making a big purchase a month before.
- Begin the search for your new home. Carefully scope out your desired neighborhoods. Try to visit at all hours of the day to see what’s happening in the area. Locate your local grocery store, pharmacies, etc. Are they in close proximity to the house? Pay special attention to districts with good schools, even if you don’t have school-age children. School districts carry an extremely high impact on the value of the house. A strong school system is a major advantage in helping your home retain or gain value.
- Once you find the house you want, move quickly and make an offer. Make your opening bid something that’s fair and reasonable. What is the property worth to you? If you really want the house, don’t low-ball and risk offending the seller. There’s no right or wrong way to negotiate a price. It all depends on how the market is doing at the time. If the market is slow, you may have lots of leverage. However, in a hot market, you may have non at all.
- When both parties agree on the price, it’s time to secure your loan. This is when you decide whether to go with the fixed rate or adjustable rate mortgage. With a fixed rate mortgage, the interest rate is set when you take out the loan and will not change. With an adjustable rate mortgage (ARM), the interest rate may go up or down.
- Hire an inspector to come out and inspect the house. Remember, you have not had your closing yet, therefore if the inspector does find any issues with the home, you can negotiate with the seller to deduct the cost of the repair from the final price. Ask to be present during the inspection, because you will learn a lot about your house, including its overall condition, construction materials, wiring, and heating. An inspection can cost about $300 on an average, a small price to pay to avoid potentially spending a fortune on repairs you were not aware of when buying the house. Keep in mind; the mortgage lender will conduct an appraisal of the property, but hiring an inspector is really the only way to get an unbiased third-party opinion.
- A few days before the actual closing, you will receive a final HUD Settlement Statement from your lender that lists all the charges you can expect to pay at closing. Thoroughly review it, as it will include things like the cost of title insurance, which varies from state to state.