Buying A Home? Do These Things First.
Home sales are rising, and for good reason.
Mortgage rates remain are near 3.5 percent for buyers paying points and rents are rising nationwide. Furthermore, home values continue to ratchet higher.
Because of today’s market, then, the longer that you wait to you, the more your home may end up costing you. By 2017, home affordability is expected to be worse than what it is today.
If you plan to buy a home this year, then, be sure to do your homework and make sure you don’t cut corners.
In today’s market, there are five things everyone should be doing before going out and buying a home.
1. Talk To A Lender Before Shopping For Home
With laptops and mobile devices at the ready, getting caught up in home shopping excitement can be easy. A few clicks and taps, and suddenly, you’re “touring” homes online.
The reality, though, is that you can’t know with certainty whether the homes you’re searching are homes for which you can get mortgage-approved.
This is why real estate agents will typically require you to speak with a lender before they’ll start showing you homes — they want to make sure you can buy the homes you want to see.
There is a big advantage to getting pre-qualified prior to your home search — you’ll know for certain how much home you can afford.
Understanding how much home you can afford is different from knowing how much home you can be qualified to purchase.
A lender may tell you that, based on your income, assets, and credit, you can qualify to purchase a home for, say, $300,000. However, that says nothing for a payment.
You may know that you’re only comfortable paying a certain amount each month and, in order to limit your payment to that number, your maximum purchase price falls to $275,000.
This is the difference between what you can afford, and for what you’re qualified.
Next, get pre-approved. What could be worse than finding your dream home, only to discover that you can’t get mortgage-approved on it?
With a mortgage pre-approval, you and your real estate agent will know which homes you can buy; and you’ll have documentation to show a seller that your offer on their home is serious.
Consider that most sellers won’t even consider an offer unless it’s accompanied by a pre-approval letter.
2. Budget For Property Taxes & Homeowners Insurance
In the excitement of shopping for a home, buyers sometimes find an online mortgage calculator, punch in a few numbers, and voila – think they’ve determined what it will cost to live in a home monthly.
The unfortunate truth is that mortgage calculators often tell just part of the story.
You need to know more than the principal + interest payment that comes from knowing your purchase price, downpayment amount, and mortgage rates. You need to know what taxes and insurance will cost you, too.
Your complete payment is known as your PITI — principal, interest, taxes, and insurance — and PITI is what you pay to your lender monthly.
For each property, taxes and insurance will vary. Be sure to have good estimates of what your costs will be.
Your lender or real estate agent can help you with these figures, or you can estimate between 1-3% for property taxes; and up to 1% annually for homeowners insurance.
3. Know Your Mortgage Credit Scores
Your mortgage credit scores help determine your ultimate mortgage rate, so it’s important to know your scores.
If you prefer to do you own due diligence with respect to credit scores, there are publicly available services such as Credit Karma which can help you access your scores. In general, scores of 740 or better are considered excellent with most lenders requiring a minimum 580 in order to get approved.
You may not want to pay for your credit scores via a third-party service, though, which means you’ll need to find another means to access your score.
Thankfully, if you’ve asked a lender to pre-approve your loan, you can get access to your scores automatically — all you have to do is ask.
As a courtesy, the majority of mortgage lenders will to share your credit report and credit scores with you at no costs and, if asked, will offer advice on how to get a higher score.
4. Budget For Closing Costs
Of course, you’ll also want to budget for closing costs. These costs, too, can be uncovered during the mortgage pre-approval process, which is helpful.
Note that closing costs vary by state, and they sometimes add up quickly.
Origination fees, attorney fees, appraisal fees, title insurance, and other charges can place a sizeable hurdle between you and your new home. In some states, you can expect to pay costs of up to $4,000.
In other states, costs may run just half that amount.
Regardless, it’s important to account for it.
Many buyers understand that they’re required to bring down payment to closing. What many forget, though, excepting for seller concessions, closing costs must be paid in addition to the down payment.
If your downpayment is $20,000 and your closing costs total $2,500, your amount due at settlement is $22,500.
5. Pay For An Impartial Home Inspection
Lastly, don’t scrimp on your home inspection. This is paramount.
Home inspections can be expensive, costing $400 or more. For this reason, buyers often waive their right to an inspection. Real estate agents will tell you, though, that inspections are worth what they cost.
Home inspections are meant to uncover structural issues with a home and include an examination of plumbing and electric, as well as roofing, HVAC, and more.
Even a “clean” inspection which costs $400 is worth what you pay. You’ll have peace of mind that your home-to-be is in tip-top shape.
On the other hand, though, should your inspection turn up problems, you’ll have time to address those issues and can often “walk away” from the purchase before it becomes a money pit.
Home inspections should always be performed — even on new construction.