Buying a Home?
Here are 5 Very Useful Tips to Know
Steven Chang
It seems as if the real estate market is softening up.
That means home prices are cooling off. This means that
many people are taking this opportunity to purchase their
first home. Since this may be the largest purchase you''ll
ever make, you must take into consideration these 5 things
before you begin searching for your perfect home.
(1) Establish your budget. You need to sit down and
figure out how much disposal income you have. How much
money do you have at the end of the day? Start by writing
down all of your expenses and compare that to your income.
Will you have enough to cover your mortgage? This will
also help determine what price range you can afford to buy.
If your expenses are much higher than your income, perhaps
buying a home at this time is not good idea. If you''re
adamant about purchasing a home right now, take a look at
ALL of your current expenses and see which areas you can
cut back on to increase your cash flow. I have a friend
who can easily purchase a $500,000 home based on her
income. However, her standard of living was too high. She
loves fine dining and martinis. It was her daily routine
after work. That was something she was not willing to give
up. Ultimately, she decided that buying a home was not for
her after all.
(2) Know what type of home fits you best. Sometimes,
how much you can afford determines the type of home you
can buy. Typically, single family homes are more
expensive than town-homes, and town-homes are more
expensive than condos (given that they are in the same
area, of course). Perhaps you are willing to live in a
condo for a few years and then upgrade to a single family
home when you have enough saved up. Or perhaps you want a
condo because of the community facilities it has to offer,
such as a gym, swimming pool, and tennis courts. If
you''re looking at town-homes or condos, remember to factor
in the Homeowner''s Association fees to your monthly
mortgage. They can range from $50 to $500 depending on
what facilities and services are offered (insurance,
trash, pool, gym, etc). The new homes these days are
being built as PUDs (Planned Unit Developments). Although
they are detached homes with a yard, they may still have
to pay a small Association fee.
(3) Know the Market. Is the market in the area you are
looking for hot or is it slowing down? This will
determine how fast you will need to act to close on the
deal as well as your negotiation power. If the market is
hot, you may not hear back from the listing agent unless
you put in an offer above their asking price. If the
market is soft, the seller may be contacting you everyday.
In this case, you may be able to negotiate the price down
a little. If you can''t negotiate the price, try
negotiating other things, such as closing, kitchen
appliances or the washer / dryer. I bought an investment
property when the market was soft. The buyer wanted to
sell her property quick. I was able to negotiate the
price down by $5,000 as well and all the furniture in the
house. If anything, you can always donate the old
furniture and get a tax write off. Most importantly, if
you can determine the average price of how much homes have
been sold for in the area within the last 3 to 6 months,
you will know whether or not your offer is too high or too
low. But be sure you compare the home prices to SOLD
homes, not homes FOR SALE. Homes for sale have not closed
yet and can not provide an accurate sales comparison.
(4) Know your Credit Score. Again, this is going to be
the biggest purchase ever, so you want to make sure you
can get the best deal. Knowing your credit score and what
it means will help you get the best deal. The sooner you
find out your score, the better chance for you to fix any
errors on it and improve the score. The higher your
score, the better chance of getting a better interest rate
on your mortgage. For instance, if your credit score is
below 670, you might get an interest rate of 6.5% whereas
someone else with a credit score of 690 (all other
qualifications being equal) may qualify for an interest
rate of 6.0%. That 0.5% may not sound like it will make a
big difference. In fact, if you factor in compounding
interest over 30 years, you''re looking at saving hundreds
of thousands of dollars. You should order a free credit
report every year to make sure it''s clean. If you have
bad credit, try to improve it by fixing the errors, if
any, as soon as possible. Or you can work with a credit
restoration company that can help you improve your credit.
(5) Know your loan options. There are many loan programs
for different people. You want to make sure you can get
the best loan program you can qualify for based on your
needs and lifestyle. Remember, the higher your down
payment, the lower your monthly mortgage will be. Ask
yourself, are you looking to do a zero percent down
payment or are you planning to put down 20% to avoid
Private Mortgage Insurance (PMI)? One common program is
the conventional 30 year loan where both the interest and
principal is being paid over a span of 30 years at a fixed
interest rate. There is also the 3, 5 or 10 year ARM
(Adjustable Rate Mortgage) interest only programs where
you pay the interest portion only for the first 3, 5, or
10 years at the rate quoted, but the rate becomes
adjustable thereafter. Keep in mind when opting for this
program that you won''t know what the rate will be in the
future. Your monthly payments can increase as much as
double and put you into financial trouble. Another
program is the 30 year fixed with the first 10 years
interest only. For the first 10 years, you are paying
only the interest portion of the loan. You then pay both
interest and principal the next 20 years. But the
interest does not go up after the first 10 years since it
is a fixed rate mortgage. No matter which program you
choose, be sure you talk to your loan agent and see which
options best fits your needs and lifestyle.
With all the paperwork to gather and sign, purchasing a
home can be an overwhelming. But don''t let it get to you.
You just need to do some homework and understand the basic
steps of home buying. After all, it can be one of the
best investments you can make.
**********************************
Steven Chang is a licensed real estate agent in California.
Read this first if you want to become a home owner http://www.gurucs.com/mortgage
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