Strengthen your credit. Pay off credit cards and keep the amount on the card below 30% of the max! Tough, but worth it because even car insurance rates depend on your credit score. Repair any credit disputes or delinquencies. Your Credit Report is Free when you get it yourself, but if anyone else pulls it, your score may drop. The higher your FICO score, (between 300 and 800) the better rates you'll get. Use Experian, Trans Union or Equifax for free report.
To buy a copy of your report,
If you are a first time buyer or veteran, check for FHA programs that are much better deals and not carried by most mortgage brokers.
Call a banker, or mortgage broker
to determine how much house you can afford, and how much you'll
likely be able to borrow. Warnings: Do NOT let them pull your credit
no matter how much they wail; Shop around and avoid online
applications; Get preapproved (not prequalified) to get the actual
amount you can pay. Most lenders allow you to put up to 28 percent
of your gross income or 36 percent of your net toward a house
payment. Many home sellers only accept offer from buyers who are
Look for low down payments, but be
prepared for a substantial cash sum needed to buy. Mortgages are
often based on your putting down 10 to 20 percent of the purchase
price. If you pay less down, you may need private mortgage insurance
(PMI), which increases your monthly housing cost and is not tax
Meet with your lender before
contacting a real estate agent and shop around even if they suggest
a certain lender. This way, you'll have a clearer idea of what you
can truly afford considering your personal financial situation.
Attend a free first-time buyer's
seminar before house shopping. Your lender or realtor may have a
Ask around and really dig if you want to find
a good real estate agent to represent you in the search and
negotiation process. The real estate agent should be: amiable, open,
interested, relaxed, confident, and qualified. Find from other
people about their experience, and training. Ask for a referral from
Stick to the rule of making a
logical decision and only get attached after you close the contract.
Offer less than full price and be prepared to walk.
Choose the area you like best and
second best. Look for neighborhood qualities, home design, proximity
to shopping, schools and other amenities. Lookup
the town online. Read the town paper, if there is one, and chat
with the locals.
Visit some open houses to see
what's on the market. Review overall layout, number of bedrooms and
bathrooms, kitchen amenities, and storage.
Write down in detail what you want
in a home: number of bathrooms and bedrooms, attached garage, land
and anything else that may be important, like good light or a big
enough yard for the kids. Note where you can accept options and what
is really critical.
It is a big job. Keep going. Look
at as many homes as time permits to get a sense of what's available.
Take the time to choose well and buy right.
Look around each possible home.
How is the neighborhood and the condition of nearby homes. It is
financially better to buy a fixer upper in a great area than a gem
in a dumpy zone. Location is usually a bigger consideration than the
home itself, and has a major impact on your home's resale value.
Buying a fixer-upper in the right neighborhood can be a great
investment, and finding growing communities--where more people want
to live--can lead you to a bargain property that will only
Stop by properties of interest at
various times of the day to check traffic, parking, noise levels and
general activities. Call police and fire departments as well as
public works and ask before you make the final purchase.
You can make your offer to buy
contingent on the sale of your current home. Contingent offers are
more risky and less desirable for the seller, so you may want to put
your current house on the market first and just be looking.
Earnest money with your offer is
usually $1,000 to $5,000. Once you sign the offer, you are committed
to buy the house or forfeit the deposit, unless there are inspection
issues or mortgage problems depending on your offer wording. Escrow
typically lasts 30 to 90 days, your lender arranges for purchase
financing and finalizes your mortgage after/while all inspections
are being completed.
Always have a thorough home
inspection. Request the following surveys and reports: inspection,
pests, dry rot, radon, hazardous materials, landslides, flood
plains, earthquake faults and crime statistics. A few hundred
dollars is minimal compared to identifying potentially serious
problems that could be much more costly later.
Home appraisals may cost a few
hundred dollars but may save many thousands and you will know that
it is worth the price. If the appraisal is lower than the price, you
can offer less with confidence.
Close escrow is a final step in
buying a home, usually at the title office. The papers to be signed
and initialed includes the deed, proving you now own the house, and
the title, which shows that no one else has any claim to it or lien
against it. If any issues remain, money may be set aside in escrow
until they are resolved, which acts as an incentive for the seller
to quickly remedy any problem areas in order to receive all that is
If you qualify, check out
first-time buyers' programs, Great! These often have much lower down
payment requirements. Various states and local governments offer
these. You may also be able to access up to $10,000 from your 401(k)
or Roth IRA without penalty. Ask your broker or employer for
specifics regarding borrowing against those assets.
Find the range of how much you may
need to pay in closing costs: Lender charges; Taxes; Title Search,
and; Other fees. These often run between 3 and 6 percent of the loan
amount. Credit unions may provide lower closing costs to their
Realtors charge the seller.
Usually between 5% and 7% depending on your area, the sales price,
and deal you cut. The buyer's Realtor is customarily paid a
percentage of the total commission paid by the seller at closing,
which amounts to about half, or 2.5% to 3.5% while the seller's
Realtor receives the other half of the commission. Research your
realtor well if you use one.
Have a real-estate lawyer review
closing documents and represent you at closing. Realtors are not
lawyers, and may be unqualified in the area of real-estate law.
Lawyers may charge $200-$400 for the few minutes they're actually
there, but they can be worth much more because they are looking out
for your interest. Of course, get a referral from someone Other than
Appraisers base price on
"comparables" or "comps", homes nearby which
have similar features, size, etc. If your home is more expensive
than the comps, or the appraiser finds comps in a different
subdivision or more than a half mile away, beware!
If 10%-20% down payment is too much and you have excellent credit or good credit and a steady income, mortgage brokers can provide combination mortgages to cover 95% or even 100% of the home purchase. The rate may be higher, but interest is tax-deductible and combined payments may still be lower than a first mortgage with PMI.
Be patient. Finding a home that fits your needs can take a long time. It is a skill and you will be better when you move in! Home prices and values change with the economy.
Buying a home will probably be the biggest single investment you'll ever make. Choose wisely.