Buying a Home: Insider Tips for Success
The year of 2018 proved to be incredible for the housing market. Although experts expect some challenges for 2019, when you consider the strong employment rate, rising U.S. wages, and an overall economy slated to increase between 3% and 5%, buying a house now makes perfect sense.
Regardless of whether you want to sell your current home to move to a different location or buy your first house, the goal is to find the ideal property for your needs at a price that fits your budget.
Since the 2008 housing market crash, home buyers have needed to do things somewhat differently. Here are some examples:
Mortgage loans – Loosely qualifying loans have become a thing of the past. Today, you need to secure financing with a fixed rate mortgage (FRM) or an adjustable rate mortgage (ARM). No matter which one you choose, the loan must meet strict “qualified mortgage” standards set by the Consumer Financial Protection Bureau. If you opt for an ARM, you’ll find caps that prevent the interest rate from increasing too quickly. Also, the lender will qualify your ARM loan using the worst-case scenario at the highest possible rate.
Down payment – Most lenders require at least 3% to 5% down, regardless of the loan program.
Credit – If you have a FICO score of less than 620, you likely will not qualify for a home loan. Therefore, if you have less-than-perfect credit, spend roughly six months working hard to pay off debt to improve your score with all three reporting agencies (TransUnion, Experian, and Equifax). Even if you have a good credit score, you’ll likely pay a higher interest rate on a conventional loan.
Documentation – Although documenting everything you can when buying a house has always been essential, it’s even more important now. Create a paper or electronic file to store copies of important documents.
Home Buying Tips from the Experts
There are few things more frustrating than having your heart set on buying a house only for something to come up that prevents you from achieving your dream. Fortunately, some of the top real estate experts have shared some information that‘ll increase your odds of finding and buying the perfect home.
Since you know about the down payment rule (conforming mortgage loan) for 2019, start saving money at once. Especially if you have a student loan, car payment or other hefty expenses, you need to create a plan that allows you to put enough money aside. Along with the down payment, lenders like to see that potential home buyers have decent savings, so add that to the budget as well.
Hiring a real estate agent is one of the most important decisions you’ll make. You want someone with years of experience and a positive reputation in the community. Since the agent you select helps with finding you a house, negotiating the price and working through closing, it’s essential that you go with someone that you trust to have your best interest at heart.
Preapproval VS Prequalification
Instead of looking for a loan after you find your dream home, meet with a respected lender first. Then, you can become either preapproved or prequalified.
With prequalification, a lender determines you would qualify for a mortgage loan if you went through the complete application process.
In comparison, preapproval means the lender completes the application and all the required documentation, approving you for a loan before you shop for a house.
While both have distinct advantages, having preapproval is the most advantageous. In that position, you have the leverage to negotiate on the price, the amenities left by the current owner and the closing date.
Remember, the down payment and monthly mortgage payment are just two things you must pay for as a homeowner. Whether you work with a reputable real estate agent or use online tools, be sure to account for maintenance and unexpected costs.
Even if a home passes the inspection, there’s no telling when the water heater will start to leak or the dishwasher will stop running. A lot of people think the bigger the home the better. Yet bigger homes can also come with higher maintenance costs and surprise expenses.
One challenge of buying a house is you know nothing about your neighbors until after moving in. If possible, try to gather information about the people who live next door, including age, whether they have pets or children and their occupations. Your real estate agent can be an excellent source of neighborhood information. At a minimum, conduct an online search for registered sex offenders in the neighborhood where you want to buy, particularly if you have children.
You likely have heard the phrase, “location is everything.” Yes, you want to buy a house near businesses and amenities that you need, but at the same time, never discount a property outside of your targeted area. As an example, if you have your heart set on buying a house downtown, you can expect to pay a lot more than if you buy one outside of the city limits.
If this is something you refuse to budge on, conduct research and depend on your real estate agent to find houses in your preferred location. Just remember, this could extend the time it takes for you to find the perfect home.
While it does cost to have a professional home inspection done, it is worth every dime. Before you sign any paperwork, make sure a licensed inspector thoroughly checks the house from top to bottom.
High-dollar problems tend to hide. Although you would have some protection under your contract after buying, the inspection is a critical step. With an inspection, you can avoid expensive fixes and the frustration of having unexpected work done.
If you find yourself in a position to buy a home at a younger age, follow through instead of continuing to rent. The reason is that, as a homeowner, you start building equity. In little time, you will have ample savings in the property.
While you might feel tempted to use some of the equity to make upgrades, experts recommend you put money aside for those expenses instead. That way, you avoid carrying a second mortgage, which could lead to financial disaster.
Current and Future Needs
Although there is nothing wrong with buying a starter home, if possible, select one that fits both your current and future needs. If you are married with plans to have children, look at houses with extra bedrooms and bathrooms. Not only will that help with building equity since you will stay in the home for a long time, but it will also eliminate the added expense of moving.
By following these tips, you can put yourself in an excellent position to buy a house. Most importantly, enjoy the house-hunting process and your new home after settling in. Learn more about home buying in our loans guide!