Thinking of purchasing a home? Is the time right for you? Regardless of how ideal the market is, it’s a major milestone in your life and bears some thought before jumping in.
Here is the list of six things you must do before purchasing your home:
Hire a realtor
Don’t be hesitant about beginning your search to find a real estate agent. Your realtor earns a portion of the sale price when then sell you a home. And remember, the seller, not the buyer, pays the realtor’s commission. The listing agent is not there to protect you, the buyer. The listing agent is protecting the seller’s interest. A good realtor will guide you through the entire home-buying process and protect your interest. There are papers to sign and more papers to sign. It is important to have someone help you through the process as these are contracts you will be dealing with. Remember, when working with your realtor that there is always room for negotiation. If you want special conditions in your agreement, you can make that part of the deal. This is a big decision, so ensure you have a realtor who is up to the task.
Ensure you have enough cash
Homes are more affordable than they have been in many years. There are incentives such as low interest rates and the new expanded tax credit. These programs, along with zero down home mortgage loans or other offers, are enticing for first-time homebuyers in Denver, Colorado, and beyond. However, there are a lot of upfront costs: down payments are typically 20 percent of the purchase price, closing costs are 3.5 percent of price shared between the buyer and seller, and then there are moving expenses. Many people want to decorate, paint, and buy new furniture pieces for their new home. Don’t forget to calculate those items into your moving budget. Purchasing a house will have an enormous impact on your wallet. Be sure you’re ready
So, you’ve saved and have the cash, but what does your credit look like? It’s tougher to get a mortgage than it used to be. Lenders dive deeply into your financial history, income, debt, assets, and liabilities. They want to ensure your debt to income ratio is within reasonable limits. Approximately 28 percent of your income can be tied up in debt. When your parents bought their home, it was 40 percent. Lenders want to be confident you can make your payments. What’s your credit score? The most competitive lending rates, the five percent you’ve heard about, are only given to buyers with score of 700 and above. If you’re not sure there are many companies where you can get your Free credit score, it pays to know. Most mortgages are 15 or 30 years, so even half a percent adds up.
Plan to live in the home for at least five years
If you don’t plan on living in your home for at least five years, you may not recoup the expenses associated with buying and then selling it. There won’t be much equity. The first few years of payments go to interest, not to principal. It may not be the right time for you to buy. Yes, the market is right, but you want to be smart about what you’re doing. It is never wise to depend on the market rising to recoup the costs of a new purchase and move.
Plan for the future
The size of home you buy should be for the present as well as the future. This doesn’t mean buy something you can’t afford, but remember you are looking at least five years ahead.
If you’re married and planning on a family, a two bedroom may not be large enough. Single, but looking for that special someone? You should look for two bedrooms. Even a childless-couple planning a purchase may want a guest room. If you’re older, you may consider a ranch-style instead of a two-story with a lot of steps. If you have several pets, a single-family home with a yard is probably a better fit than a condo.
Remember, the purchase price is not everything
It’s just one piece of owning a home: you should consider and plan for all the costs associated with your potential home. Insurance, home association fees, and taxes are just the beginning. Home improvement, landscaping, and maintenance costs can add up quickly. Ask about other up-keep costs, like pools, fancy heating and cooling systems, or other outbuildings. Make sure you do the research on a potential property. These hidden costs can derail you quickly, so be informed about the other cost associated with your purchase.
Tricia Houston, Owner
Lending Maven Mortgage
Colorado native and Stapleton resident
You have questions about getting a mortgage, and I have the answers.