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Home buying tips
Friday, July 11th, 2014
Issue 28, Volume 18.
Buy if you will be staying a few years.
Job transfers, deployments and schooling can affect how long you stay in an area. The transaction costs of buying and selling a home can be more of a factor in profitability over a shorter term; you could lose money on the deal.
This is less of a factor in a rapidly appreciating market. Selling for a profit in less than two years could subject you to capital gains taxes.
If you will not be staying in the home for a few years, you may be better off renting. Generally, if you pay 35 percent less in rent than owning – including mortgage, property taxes and homeowner fees – you are better off renting.
Clean up your credit.
Most of us need a mortgage loan to buy a house, so a clean credit history is important. Pull a free credit report, check the facts, and fix any problems. Errors do happen.
Determine what you can afford.
Income, debts and expenses determine what you can afford. There are online calculators that can help. Generally, you should be looking at housing that is approximately two to three times your gross annual salary. Monthly home payments should not exceed 35 percent of your gross monthly income.
A pre-approval letter strengthens your offer or bargaining position when you do find the right house. Find a good mortgage lender; you will be paying on this loan for fifteen, thirty or even forty years.
An exclusive buyer’s agent will have your specific interests at heart, will have up-to-date knowledge of your neighborhood and market, and can assist with offer strategies.
The internet is fine for information on listings and available properties, but can be overwhelming. The experience of an agent could save you time and gas, and possibly thousands of dollars: sending you only the listings that meet your parameters, listings that may not have hit the market yet, and they can spot overpriced listings and active short contingent listings that are under contract.
Find the neighborhood that you want.
Look for a home in a good school district. This is a top priority for many home-buyers, especially those with school-age children. Good schools help to maintain and even boost property values. Even if you don’t have school-age children, your future buyers may. Access to shopping, recreation and other lifestyle amenities may also be considerations. Once you find the right neighborhood (or neighborhoods), then search for homes.
Tailor your offer to local market conditions.
You (or your agent) need to do homework on the sales trends in the neighborhood in the last 3-6 months and make your offer accordingly. If homes are selling five per cent below asking price with 60-day escrow periods, you may want offer 8-10 percent less with a comparable or better escrow period.
Make sure the purchase agreement has appropriate contingencies.
Obtaining a mortgage, home inspection repairs, walk-through inspection and a walk through inspection before closing are all repairs
A 20 percent down payment is normal, but less is still possible.
The more you can put down, the less you will have to finance. However, there are still a number of low-interest mortgages – Fannie Mae, Freddie Mac, FHA – available for those with less of a down payment. If you qualify, you may pay as little as 3% upfront. Shopping around will pay off.
With a down payment less than 20 percent, you will probably have to pay PMI – private mortgage insurance that protects the bank if you don’t make payments – which adds 0.5% of the total loan amount to your mortgage payment.
In addition to the down payment, you’ll need enough funds to cover fees and closing costs: appraisal, attorney, inspector, title search, etc. These can easily add up to $10,000 or more.
Pay points to buy down your interest rate.
You can pay additional points at closing in exchange for a lower interest rate over the life of the loan. The longer you keep the loan, the better your savings.
Hire a good home inspector.
Be sure to be present during the inspection; this is a good time to learn about the house’s overall condition, internal systems, construction materials and potential problem areas.
Secure a homeowner’s insurance policy.
Most lenders will require this.
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