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 beares 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 finding a great realtor. 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 sellers 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 that 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 that you have a realtor that is up to the task.
Ensure you have enough cash
Homes are more affordable than they have been in many years. There are incentives like low interest rates and the new expanded tax credit. These programs along with zero or low cash down offers are enticing for new buyers. However, there are a lot of upfront costs: down payments are typically 20% of the purchase price, closing costs are 3.5 % of price, shared between the buyer and seller and then there’s moving expenses. Many people will 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 that 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, your income, debts, assets and liabilities. They want to ensure that your debt to income ratio is within reasonable limits. Approximately 28% of your income can be tied up in debt. When your parent bought their home, it was 40%. Lenders want to be confident that you can make your payments. What’s your credit score? The most competitive lending rates, the 5% 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 is going to add 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 5 years you may not recoup the expenses associated with buying and then selling the home. 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 two stories 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 upkeep costs, like pools, fancy heating and cooling systems or other outbuildings. Make sure that 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.