The American Dream: Purchasing A Home Of Your Own.
Buying a home is probably one of the biggest investments you’ll ever make. It should be a fun process, but it’s important that you cover all your bases.
Know What You Can Afford.
Before you even start looking at houses to buy figure out what you can afford. You should review your monthly income, expenses and total savings. Experts say that you shouldn’t exceed 47% of your monthly income to go towards a mortgage, taxes and insurance combined. Buying a home that is too much of a monthly expense can sacrifice your ability to save for retirement, your children’s education, and vacations.
The Down Payment.
The days of a 0% down payment are gone, so forget about it. Some lenders still have programs that are available with a 5% down payment but the standards are 10% and 20% down. The down payment can come in the form of a gift from a parent, grandparent, friend or other relative. The down payment can also come from equity in your current home if you were to own one. Otherwise, you’re probably going to need to tap into cash savings.
Get Pre-Approved.
Again, before you start looking for the house you want, find out how much a lender will give you. Shop around for loans that will best suit your situation and get pre-approved. It’s important to understand all the terms and lingo when buying a house. We’ll give you a primer, but there always more to learn and it is important to stay updated as the market and available products change.
Getting What You Want.
When you are looking to buy a home two things are important to consider: Finding a home you can afford and getting what you want. Both are achievable if you have a plan of attack.
Where Do You Want To Live?
More important than finding the perfect house is finding the right neighborhood. This would include things that are important to you like: proximity to work or school, proximity to family and friends, school district, crime rate, rising or sinking property values, and special taxes should all be considerations.
Start Looking.
Viewing homes can be fun, but beware of falling in love with a home beyond your price range. You want to like your house but you also need to be able to afford it. Find a real estate agent that you believe is a good personality fit. The best way to do this is ask friends and family who they have used. You can also visit open houses in the neighborhoods you like and you’re bound to meet up with an agent you like.
Once you have chosen an agent you like, tell him/her exactly what you are looking for in a house, the neighborhoods you want to look in, your price range, your desired timing, and your pre-approved amount for the loan. By having this all done the real estate agent will only show you properties that meet your specifications.
You Found Your Dream Home, Now What?
Negotiate. To be in the best negotiation position you need to know your facts. Make sure your agent knows how many similar houses have sold in the same neighborhood and at what cost. Find out what upgrades those houses had versus the one you are buying. Know how fast homes are selling. If homes are going fast you have less room to negotiate price.
Have the house inspected for everything from mold, water damage, and leaks to radon, lead paint, and window seals.
Look carefully at carpets, paint, and single-paned windows. These are things you can use to negotiate the price down.
When you submit your bid include a letter to the owner about how much you like the property and how you see yourself living there. It might sound cheesy, but it can work to your advantage if there is someone else trying to buy the same home.
The Vocabulary Of Home Buying.
It’s important to understand all the terms and lingo when buying a house. We’ll give you a primer, but there’s always more to learn and it is important to stay updated as the market and available products change.
Term:
The amount of time you have to repay the loan, usually 15 or 30 years.
APR or Annual Percentage Rate:
This is the term for the interest rate you’ll pay including all fees and charges.
Points:
One point is equal to 1% of the loan amount. One point on a $85,000 mortgage loan would be (.01 x $85,000) or $850. Two points would be $1,700. Higher points should mean a lower interest rate for the life of a fixed rate mortgage loan. If you have the cash to pay more points the lender should give you a lower on-going interest rate. Lower points usually mean a higher interest rate for the life of the loan. Beware of "no-point" loans. Zero points usually mean a higher overall interest rate.
Fixed Rate Mortgage:
A fixed rate mortgage is when the interest rate you start out with stays the same throughout the life of the term.
ARM or Adjustable Rate Mortgage:
An adjustable rate mortgage loan typically starts out with an interest rate lower than a fixed-rate mortgage loan for the same amount, but the interest rate can increase based on specified limits called caps. The annual cap sets a limit on how much the interest rate can increase in a single year. The life-time cap sets a maximum on how much the interest rate can increase over the life of the mortgage loan. Actual increases are based on changes in short term interest rates but cannot exceed the cap.
Have you bought a home? Tell the iGrad community what it was like and what to look for?