10 Things to Take the Trauma Out of Homebuying
- Find a real estate professional who’s simpatico. Homebuying is not only a big financial commitment, but also an emotional one. It’s critical that the practitioner you choose is both skilled and a good fit with your personality.
- Remember, there’s no “right” time to buy, any more than there’s a right time to sell. If you find a home now, don’t try to second-guess the interest rates or the housing market by waiting. Changes don’t usually occur fast enough to make that much difference in price, and a good home won’t stay on the market long.
- Don’t ask for too many opinions. It’s natural to want reassurance for such a big decision, but too many ideas will make it much harder to make a decision.
- Accept that no house is ever perfect. Focus in on the things that are most important to you and let the minor ones go.
- Don’t try to be a killer negotiator. Negotiation is definitely a part of the real estate process, but trying to “win” by getting an extra-low price may lose you the home you love.
- Remember your home doesn’t exist in a vacuum. Don’t get so caught up in the physical aspects of the house itself—room size, kitchen—that you forget such issues as amenities, noise level, etc., that have a big impact on what it’s like to live in your new home.
- Don’t wait until you’ve found a home and made an offer to get approved for a mortgage, investigate insurance availability, and consider a schedule for moving. Presenting an offer contingent on a lot of unresolved issues will make your bid much less attractive to sellers.
- Factor in maintenance and repair costs in your post-homebuying budget. Even if you buy a new home, there will be some costs. Don’t leave yourself short and let your home deteriorate.
- Accept that a little buyer’s remorse is inevitable and will probably pass. Buying a home, especially for the first time, is a big commitment, but it also yields big benefits.
- Choose a home first because you love it; then think about appreciation. While U.S. homes have appreciated an average of 5.4 percent annually from 1998 to 2002, a home’s most important role is as a comfortable, safe place to live.
5 Common First-Time Homebuyer Mistakes
- They don’t ask enough questions of their lender and miss out on the best deal.
- They don’t act quickly enough to make a decision and someone else buys the house.
- They don’t find the right real estate professional who is willing to help you through the homebuying process.
- They don’t do enough to make their offer look good to a seller.
- They don’t think about resale before they buy. The average first-time buyer only stays in a home for four years.
10 Tips for First-Time Homebuyers
- Be picky, but don’t be unrealistic. There is no perfect home.
- Do your homework before you start looking. Decide specifically what features you want in a home and which are most important to you.
- Get your finances in order. Review your credit report and be sure you have enough money to cover your down payment and your closing costs.
- Don’t wait to get a loan. Talk to a lender and get prequalified for a mortgage before you start looking.
- Don’t ask too many people for opinions. It will drive you crazy. Select one or two people to turn to if you feel you need a second opinion.
- Decide when you could move. When is your lease up? Are you allowed to sublet? How tight is the rental market in your area?
- Think long-term. Are you looking for a starter house with the idea of moving up in a few years or do you hope to stay in this home longer? This decision may dictate what type of home you’ll buy as well as the type of mortgage terms that suit you best.
- Don’t let yourself be “house poor”. If you max yourself out to buy the biggest home you can afford, you’ll have no money left for maintenance or decoration or to save money for other financial goals.
- Don’t be naïve. Insist on a home inspection and, if possible, get a warranty from the seller to cover defects within one year.
- Get help. Consider hiring a REALTOR® as a buyer’s representative. Unlike a listing agent, whose first duty is to the seller, a buyer’s representative is working only for you. And often, buyer’s reps are paid out of the seller’s commission payment.
10 Questions to Ask Your Lender
Be sure you find a loan that fits your needs with these comprehensive questions.
- What are the most popular mortgage loans you offer?
- Which type of mortgage plan do you think would be best for us? Why?
- Are your rates, terms, fees, and closing costs negotiable?
- Will I have to buy private mortgage insurance? If so how much will it cost and how long will it be required? NOTE: Private mortgage insurance usually is required if you make less than a 20 percent down payment, but most lenders will let you discontinue the policy when you’ve acquired a certain amount of equity by paying down the loan.
- Who will service the loan? Your bank or another company?
- What escrow requirements do you have?
- How long is your loan lock-in period (the time that the quoted interest rate will be honored)? Will I be able to obtain a lower rate if they drop during this period?
- How long will the loan approval process take?
- How long will it take to close the loan?
- Are there any charges or penalties for prepaying the loan?
10 Things a Lender Needs From You
- W-2 forms or business tax return forms if you’re self-employed for the last two or three years for every person signing the loan.
- Copies of one or more months of pay stubs from every person signing the loan.
- Copies of two to four months of bank or credit union statements for both checking and savings accounts.
- Copies of personal tax forms for the last two to three years.
- Copies of brokerage account statements for two to four months, as well as a list of any other major assets of value, e.g., a boat, RV, or stocks or bonds not held in a brokerage account.
- Copies of your most recent 401(k) or other retirement account statement.
- Documentation to verify additional income, such as child support, pension, etc.
- Account numbers of all your credit cards and the amounts of any outstanding balances.
- Lender, loan number, and amount owed on other installment loans—student loans, car loans, etc.
- Addresses where you lived for the last five to seven years, with names of landlords, if appropriate
7 Reasons to Own Your Own Home
- Tax breaks. The U.S. Tax Code lets you deduct the interest you pay on your mortgage, property taxes you pay, and some of the costs involved in buying your home.
- Gains. Between 1998 and 2002, national home prices increased at an average of 5.4 percent annually. And while there’s no guarantee of appreciation, a 2001 study by the NATIONAL ASSOCIATION OF REALTORS® found that a typical homeowner has approximately $50,000 of unrealized gain in a home.
- Equity. Money paid for rent is money that you’ll never see again, but mortgage payments let you build equity ownership interest in your home.
- Savings. Building equity in your home is a ready-made savings plan. And when you sell, you can generally take up to $250,000 ($500,000 for a married couple) as gain without owing any federal income tax.
- Predictability. Unlike rent, your mortgage payments don’t go up over the years so your housing costs may actually decline as you own the home longer. However, keep in mind that property taxes and insurance costs will rise.
- Freedom. The home is yours. You can decorate any way you want and be able to benefit from your investment for as long as you own the home.
- Stability. Remaining in one neighborhood for several years gives you a chance to participate in community activities, lets you and your family establish lasting friendships, and offers your children the benefit of educational continuity.
To calculate whether renting or buying is the best financial option for you, use this calculator courtesy of Ginnie Mae: http://www.ginniemae.gov/rent_vs_buy/rent_vs_buy_calc.asp?Section=YPTH