Take the Stress Out of Home Buying

Buying a home should be fun, not stressful. As you look for your dream home keep these tips in mind:

  1. Find a real estate agent who you connect with.
  2. Home buying is not only a big financial commitment, but also an emotional one. It's critical that the REALTOR®you chose is both highly skilled and a good fit with your personality.
  3. Remember, there's no "right" time to buy, just as there's no perfect time to sell.
  4. If you find a home now, don't try to second-guess interest rates or the housing market by waiting longer - you risk losing out on the home of your dreams. The housing market usually doesn't change fast enough to make too much difference in price, and a good home won't stay on the market long.
  5. Don't ask for too many opinions.
  6. It's natural to want reassurance for such a big decision, but too many ideas from too many people will make it much harder to make a decision. Focus on the wants and needs of your immediate family - the people who will be living in the home.
  7. Accept that no house is ever perfect.
  8. If it's in the right location, the yard may be a bit smaller than you had hoped. The kitchen may be perfect, but the roof needs repair. Make a list of your top priorities and focus on things that are most important to you. Let the minor ones go.
  9. Don't try to be a killer negotiator.
  10. Negotiation is definitely a part of the real estate process, but trying to "win" by getting an extra-low price or by refusing to budge on your offer may cost you the home you love. Negotiation is give and take.
  11. Remember your home doesn't exist in a vacuum.
  12. Don't get so caught up in the physical aspects of the house itself - room size, kitchen, etc. - that you forget about important issues as noise level, location to amenities, and other aspects that also have a big impact on your quality of life.
  13. Plan ahead.
  14. Don't wait until you've found a home and made an offer to get approved for a mortgage, investigate home insurance, and consider a schedule for moving. Presenting an offer contingent on a lot of unresolved issues will make your bid much less attractive to sellers.
  15. Factor in maintenance and repair costs in your post-home buying budget.
  16. Even if you buy a new home, there will be costs. Don't leave yourself short and let your home deteriorate.
  17. Accept that a little buyer's remorse is inevitable and will probably pass.
  18. Buying a home, especially for the first time, is a big financial commitment. But it also yields big benefits. Don't lose sight of why you wanted to buy a home and what made you fall in love with the property you purchased.

 

Lender Checklist: What You will Need for a Mortgage

  • W-2 forms - or business tax return forms if you're self-employed - for the last two or three years for every person signing the loan.
  • Copies of at least one pay stub for each person signing the loan.
  • Account numbers of all your credit cards and the amounts for any outstanding balances.
  • Copies of 2-4 months of bank or credit union statements for both checking and savings accounts.
  • Lender, loan number, and amount owed on other installment loans, such as student loans and car loans.
  • Addresses where you've lived for the last 5-7 years, with names of landlords if applicable.
  • Copies of brokerage account statements for two to four months, as well as a list of any other major assets of value, such as a boat, RV, or stocks or bonds not held in a brokerage account.
  • Copies of your most recent 401(k) or other retirement account statement.
  • Documentation to verify additional income, such as child support or a pension.
  • Copies of personal tax forms for the last two to three years.

 

Types of Loans

Brush up on these mortgage basics to help you determine the loan that will best suit your needs.

  • Mortgage terms.
  • Mortgages are generally available at 15-, 20-, or 30-year terms. In general, the longer the term, the lower the monthly payment. However, you pay more interest overall if you borrow for a longer term.
  • Fixed or adjustable interest rates.
  • A fixed rate allows you to lock into a rate for as long as you hold the mortgage and, in general, is usually a good choice if interest rates are low. An adjustable-rate mortgage (ARM) is designed so that your loan's interest rate will rise as market interest rates increase. ARMs usually offer a lower rate in the first years of the mortgage. ARMs also usually have a limit as to how much the interest rate can be increased and how frequently they can be raised. These types of mortgages are a good choice when fixed interest rates are high or when you expect your income to grow significantly in the coming years.
  • Balloon mortgages.
  • These mortgages offer very low interest rates for a short period of time - often three to seven years. Payments usually cover only the interest so the principal owed is not reduced. However, this type of loan may be a good choice if you think you will sell your home in a few years.
  • Government-backed loans.
  • These loans are sponsored by agencies such as the Federal Housing Administration (www.fha.gov) or the Department of Veterans Affairs (www.va.gov) and offer special terms, including lower down payments or reduced interest rates to qualified buyers.

Slight variations in interest rates, loan amounts, and terms can significantly affect your monthly payment.

Five Factors That Decide Your Credit Score

Credit scores range between 200 and 800, with scores above 620 considered desirable for obtaining a mortgage. The following factors affect your score:

  1. Your payment history.
  2. Did you pay your credit card obligations on time? If they were late, then how late? Bankruptcy filing, liens, and collection activity also impact your history.
  3. How much you owe.
  4. If you owe a great deal of money on numerous accounts, it can indicate that you are overextended. However, it's a good thing if you have a good proportion of balances to total credit limits.
  5. The length of your credit history.
  6. In general, the longer you have had accounts opened, the better. The average consumer's oldest obligation is 14 years old, indicating that he or she has been managing credit for some time, according to Fair Isaac Corp., and only one in 20 consumers have credit histories shorter than 2 years.
  7. How much new credit you have.
  8. New credit, either installment payments or new credit cards, are considered more risky, even if you pay them promptly.
  9. The types of credit you use.
  10. Generally, it's desirable to have more than one type of credit - installment loans, credit cards, and a mortgage, for example.

 

Making an Offer

When buying a home, it's important to think carefully about your offering price AND the terms of your offer. Most offers define both. In some cases, terms and conditions can represent thousands of dollars in additional value for Buyers or Sellers. Terms may include home inspections (including pest and termite, lead paint, radon, etc.); requests for specific property repairs, or timing considerations, such as a conditional purchase clause (if, for example, you must first find a buyer for your current home).

Buyers often mistakenly believe there is a predetermined formula for offers - that offering prices should be X percent lower than the seller's asking price or the amount they are really willing to pay. In reality, your offer price actually depends more upon the basic laws of supply and demand. If many buyers are competing for homes, then sellers will likely get full-price offers and sometimes even more. If demand is weak and there is a large supply of homes for sale, an offer below the asking price may be in order.

The process of making an offer varies by state. In most cases, you complete an offer that your REALTOR® presents on your behalf. The Seller will then have the option of accepting, rejecting, or countering your offer.

Because counter-offers are common (any change in terms can be considered a "counter-offer"), it's important that you remain in close contact with your REALTOR® during the negotiation process so that any proposed changes can be quickly reviewed.

 

Home Inspections

The purchase of a home is probably the largest single investment a buyer will ever make. He/she should learn as much as possible about the condition of the property and the need for any major repairs before buying, in order to minimize surprises and difficulties later. A licensed, professional, well-trained home inspector can provide buyers with the information needed to make an informed purchase.

A home inspector is typically hired by a potential homebuyer right after the offer to purchase is signed, and prior to executing the purchase and sale agreement. (The buyer should make sure there is an inspection clause in his/her offer to purchase that makes the purchase obligation contingent upon the findings of a professional home inspection.)

A home inspection is an objective visual examination of the physical structure and systems of a home, from the roof to the foundation. The standard home inspector will review the condition of the home's heating and cooling system, interior plumbing and electrical systems; the roof, attic and visible insulation; walls, ceilings, floors, windows and doors, the foundation, basement, and visible structure. Home inspections are not intended to point out every small problem or any invisible or latent defect in a home. Most minor or cosmetic flaws, for example, should be apparent to the buyer already.

While not necessary, it is recommended that the buyer be present for the inspection. This allows him/her to observe the inspector, ask questions directly, and obtain a better understanding of the condition of the home, how its systems work, and how to maintain it. The written report may be easier to understand if the buyer was present during the inspection.

Good referral sources for home inspection services are friends, neighbors, or business acquaintances who have been satisfied with a home inspector in the area one is buying (it's suggested to use a local home inspector who knows the specific weather patterns, home conditions and problems typical to the area.) A real estate agent may recommend a specific home inspector if he/she is representing the buyer as a buyer's agent.

 

Choosing a Home Inspector

When choosing a home inspector, here are some questions to ask:

  1. Are you a licensed home inspector?
  2. All home inspectors must be licensed. A person wishing to become a home inspector must first take a course and pass an exam. They are then considered an associate inspector. They must work for one full year under a licensed inspector and complete one hundred inspections. They must then take another exam before becoming a licensed inspector.
  3. Do you belong to a professional home inspector association?
  4. There are many state and national associations for home inspectors, including the two groups mentioned in No. 1. Unfortunately, some groups confer questionable credentials or certifications in return for nothing more than a fee. Insist on members of reputable, nonprofit trade organizations; request to see a membership ID.
  5. Do you have construction experience, or do you hold any additional licenses in the construction trade?
  6. Someone with construction experience may have a more in-depth knowledge of homes.
  7. Do you hold any additional professional credentials?
  8. How many home inspections have you performed?
  9. In order to be licensed, a person must have performed 100 home inspections.
  10. What is the amount of professional liability insurance that you carry?

 

What is Title Insurance?

Title insurance protects the holder from any losses sustained from defects in the title. It's required by most mortgage lenders. Here are five other things you should know about title insurance.

  1. It protects your ownership right to your home, both from fraudulent claims against your ownership and from mistakes made in earlier sales, such as mistake in the spelling of a person's name or an inaccurate description of the property.
  2. It's a one-time cost usually based on the price of the property.
  3. There are both lender title policies, which protect the lender, and owner title policies, which protect you. The lender will probably require a lender policy.
  4. Discounts on premiums are sometimes available if the home has been bought within only a few years since not as much work is required to check the title. Ask the title company if this discount is available.

 

Typical Closing Costs for Buyers

You'll likely be responsible for a variety of fees and expenses that you and the seller will have to pay at the time of closing. Your lender must provide a good-faith estimate of all settlement costs. The title company or other entity conducting the closing will tell you the required amount for:

  • Down payment
  • Loan origination
  • Points, or loan discount fees, which you pay to receive a lower interest rate
  • Home inspection
  • Appraisal
  • Credit report
  • Private mortgage insurance premium
  • Insurance escrow for homeowner's insurance, if being paid as part of the mortgage
  • Property tax escrow, if being paid as part of the mortgage. Lenders keep funds for taxes and insurance in escrow accounts as they are paid with the mortgage, then pay the insurance or taxes for you.
  • Deed recording
  • Title insurance policy premiums
  • Land survey
  • Notary fees
  • Pro-rations for your share of costs, such as utility bills and property taxes