WHAT EVERY BUYER NEEDS TO KNOW
Being informed is important when you are making big financial decisions, and there are few financial decisions bigger than buying a home. Take the time to educate yourself about what you are getting into before you commit to buying any property. The following tips are here to help you get started. These 20 things to do before the purchase of a house will put you in a position for not only a smooth transaction but a pleasant first time home ownership experience.
1. Know your credit score
Your credit score is one of the biggest factors in what your loan terms will be. Know your score before you ever try to get a loan, and take the time to repair it if it is lower than 700. A good score which leads to a low-interest rate can save you tens of thousands of dollars over the life of the loan. Learn how to raise your credit score to get better loan terms.
2. Have a lender pre-approve you before shopping
What to do before buying a house includes getting pre-approved. In fact, it is one of the most important parts of the home buying process! Pre-approval means you should be able to get the loan as long as nothing changes about your financial situation or your credit score.
A pre-approval letter also helps when you want to compete with another buyer for a home you love. One of the first things most sellers are going to ask their agent when receiving an offer is how qualified the buyer is to purchase. Sellers want to feel comfortable knowing the buyer is not going to get turned down for the loan. A home buyer should understand there is a difference between a mortgage pre-approval and a pre-qualification. To get pre-approved lenders will verify employment, income, and credit. Often this is not the case with a pre-qualification.
3. Shop the lender
While getting pre-approved for a mortgage is a significant step for a first-time buyer so is shopping for the best deal possible. You will probably be paying the mortgage for a while so getting the lowest mortgage rate should be one of your prime considerations. Be sure to look at the annual percentage rate you are paying (commonly referred to as the APR) so you can compare apples to apples. With some loans, you may be paying more points or have higher closing costs than others. So when you are shopping for the best mortgage possible, don’t just look at the rate but the whole package.
4. Know every expense
There are a lot of fees that come with a home purchase above and beyond the mortgage. Insurance, repairs, association fees, property taxes – you should have the income and the budget to handle all of these things if they are relevant to your purchase. Real Estate agents talk all the time about additional expenses to consider when buying a home. The article covers seven costs buyers often forget about. You should also have some savings to cover emergencies with the home.
5. Know what you want
Do you want a home or a condo? For many first time home buyers, this is one of the first dilemmas they will try to solve. In fact, many buyers will look at both because they can’t make up their mind. To make sound decisions, you should know the pros and cons of a condo vs. a house. More buyers will end up disappointed when picking a condo because they did not understand the ramifications of how restrictive they can be or how quickly fees can change. The appeal, of course, is usually for those buyers who do not have time for home maintenance.
After the excitement of buying the home passes, you will have to live in it for years. Make sure you are shopping for a home that will meet your needs and your lifestyle. More space is not always better. Lawns require upkeep. Being close to the things you like may wind up being more important than you realize. Understand you are not just buying a home but a location as well. One of the key considerations that many buyers miss when purchasing a home is knowing how to pick a neighborhood they will love. Often first time buyers focus too much on the house and not enough on the neighborhood.
6. Work with a skilled Realtor that knows your area
Every neighborhood has its unique qualities that you want to be aware of before you buy. An agent that is well-informed about the area will also know what homes there are worth, which will help you avoid overpaying for a property. You want a real estate agent who knows their stuff locally!
7. Understand the actual value of any property you are buying
Working with a real estate agent that understands market values in your area is critical if you want to avoid overpaying for your house. In addition to the actual purchase price, there are other fees like appraisal and inspections that can cost you more when you don’t understand the value of the home. Sellers and banks may not be flexible should you ask about adjusting the price later, either.
8. Buy what you are comfortable paying
You may be cleared for a loan that is far above what you are comfortable paying for. Lean on the side of caution and mortgage only as much money as you are comfortable with. There are a lot of home buyers who will mortgage themselves to the hilt only to find out later they are a slave to their home. Unless you want to be eating spaghetti dinners at home, every weekend don’t stretch beyond your means.
9. Verify all information in the listing
You need to verify that all the information given about the home is right. Sometimes real estate agents put things in the listing that they may not have verified or may just not be aware of the facts. Some of the more common issues that can crop up in a real estate transaction are understanding what stays with a home and what doesn’t. Many buyers, sellers, and even some agents do not know what is considered a fixture and what is personal property.
10. Try to see yourself in the home
Sometimes when you view a home, it will be filled to the brim with the current owner’s things. Learning to see past the clutter to the potential of the home for you may allow you to find better deals than you would otherwise. This is why real estate agents often recommend to seller clients to clear all the clutter before listing their home for sale. Cluttered homes can sell for less money when those with a lack of vision can’t see past it.
11. Use a reputable home inspector
Find a home inspector that is a part of the American Society of Home Inspectors, or someone your real estate agent knows and trusts. You want someone who knows what he or she is doing and is not motivated to miss issues to encourage a sale. It is also advisable to find your inspector if you do not know your real estate agent well.
12. Make sure all renovations are up to code
If a renovation was done without a permit, it might not have been done right. No permit means that the work was not reviewed by an inspector, something you do not want in your new home. You might be wondering why a seller would bother not getting a permit for work done on their home. There are usually three reasons for this:
By obtaining a permit for an addition, you will pay more money in taxes because your assessed value will go up with a larger home.
It costs money to get permits. When you put on an addition, you are typically paying for permits for electrical, plumbing, and the general building inspector. Many owners just don’t want to bother paying the fees.
Pure laziness. This is such a sad excuse, but that is what happens with some people who don’t want to take the time out of their day getting permits for work.
Buying a home without necessary building permits will become your issue in the future when you go to sell. It is advisable that you ask the seller to get the permits taken care of before you buy the home.
13. Be sure you understand any HOA that you will be part of
Some homes are part of a homeowner association. All condominiums also have HOAs. These organizations are mandatory if you live in the area, so you will have to pay dues and rely on the association to take care of certain things, like maintenance of common areas. Some homeowners associations are great, some are not. Know what you are getting yourself into before purchasing in a neighborhood with an HOA. One of the best ways to find out is by asking a few of the people who already live there.
14. Look for any water-related problems
A home in good condition will keep water where it belongs. Exterior moisture should not be making its way inside. Water flowing through the pipes should be staying in those pipes. Any precipitation that falls on and around the property should be directed towards safe areas, like away from your foundation. Your roof should be functioning as intended. Buying somebody’s water issues is not what you want. Water issues have a direct correlation to market value, as well as marketability.
15. Have a professional look for the presence of asbestos and mold
Asbestos was a major building material up until around 1977. Before you buy a home, you should be aware of the presence of asbestos, because it can drive up the cost of repairs and renovations while driving down the resale value. If you are planning on doing any repair work yourself, it is especially important that you know of asbestos and takes proper precautions if it is present.
Mold is one of the scariest issues with home buyers today and with good reason as it can cause health problems. If you have any respiratory problems, the presence of mold in a home can make them far worse. Mold is something that can be fixed when buying a home just know what you are getting yourself into. Any mold remediation that is necessary should be taken care of by the seller.
16. Make sure the electrical system is up to par
Current building codes require modern electrical wiring. Most homes built before the 1930s are not up to standard unless they have been renovated. These old homes use knob and tube wiring, which can be expensive to bring up to code. Keep in mind that many lenders and insurance companies will not work with a buyer if the home has knob and tube wiring due to the hazards it creates.
17. Know your plan for furniture
If you have furniture you like, you will want to bring it with you. Make sure your new home can accommodate it. Or, if you plan on buying new furniture, you want purchase a home at a price that leaves you with enough left over to furnish it. This relates back to item #8 – understand there will be additional expenses with owning a home.
18. Don’t stress the wall colors and carpet condition
Many buyers don’t have a vision when looking at homes. As crazy as it sounds there are customers who will turn down a home that meets all the criteria they are looking for because they can’t see past the ugly mauve carpeting and the purple and green wall colors.
This is a mistake we see quite a bit. One of the easiest things to change about a home is the color of the walls. Paint is inexpensive and can be applied by you after you buy. The same holds true for carpets. While it is always smart for a seller to spend the money to neutralize a home before it goes on the market that doesn’t mean you should pass on it!
19. Don’t do anything to affect your financial situation
Your pre-approval is based on the information given at the time of your application. Any changes, like getting a different job or taking out a car loan, can result in denial of the loan request when you go to purchase a house.
While we like to educate all of our buyers on making large purchases while buying a home there are many who do not. Making a large purchase is not a prudent thing to do when buying a home. This is one of the primary reasons buyers can be denied a mortgage after being pre-approved. This is not a pleasant experience!
20. Know the potential growth of your investment
Buying a fixer-upper in an area that is growing more popular offers the possibility of an increase in the value of your home. In contrast, buying the nicest house in the area may not have much of an upside.
Consult with your real estate agent and ask them their opinion on the prospects for profit if the general area continues to rise in value. Will the home lag the market or be a stalwart? If the return on investment is necessary, this is surely something you should find out.