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Home Buying Tips
Why Buying a Home is a Good Idea Why Buying a Home is a Good Idea As a fairly general rule, homes appreciate about four or five percent a year. Some years will be more, some less. The figure will vary from neighborhood to neighborhood, and region to region. Five percent may not seem like that much at first but think about the big picture. Presumably, if you bought a $200,000 house, you did not pay cash for the home. You got a mortgage. Suppose you put as much as twenty percent down – that would be an investment of $40,000. At an appreciation rate of 5% annually, a $200,000 home would increase in value $10,000 during the first year. That means you earned $10,000 with an investment of $40,000. Your annual "return on investment" would be twenty-five percent. In addition, since the interest on your mortgage and your property taxes are both tax deductible, the government is essentially subsidizing your home purchase. Your rate of return when buying a home is higher than most any other investment you could make! Things Not to Do Before Purchasing a Home Don't Move Money Around When a lender reviews your loan package for approval, one of the things they are concerned about is the source of funds for your down payment and closing costs. Most likely you will be asked to provide statements for the last two or three months on any of your liquid assets. This includes checking accounts, savings accounts, money market funds, certificates of deposit, stock statements, mutual funds, and even your company 401K and retirement accounts. If you have been moving money between accounts during that time, there may be large deposits and withdrawals in some of them. The mortgage underwriter (the person who actually approves your loan) will probably require a complete paper trail of all the withdrawals and deposits. You may be required to produce cancelled checks, deposit receipts, and other seemingly inconsequential data, which could get quite tedious. Moving your money around, even if you are consolidating your funds to make it "easier," could make it more difficult for the lender to properly document. So consult your mortgage advisor prior to moving any money around. Don't Buy a Car When you get a raise or accumulate some savings, many people immediately want to upgrade their vehicle or purchase a new one. When you contact a loan officer to get pre-qualified for a mortgage loan they need to review your entire portfolio. One factor that contributes to your worthiness for a loan is your Debt to Income Ratio. If you make a big purchase, such as a new vehicle they consider the $30,000 for the new vehicle a debt against you and it may affect the amount of money you are able to borrow. Don't Switch Jobs For most people, changing employers will not really affect your ability to qualify for a mortgage loan, especially if you are going to be earning more money. For some homebuyers, however, the effects of changing jobs can be disastrous to your loan application. Consult with your loan advisor prior to making any major shifts to ensure it does not affect your loan. A home inspection is when a paid professional inspector — often a contractor or an engineer — inspects the home, searching for defects or other problems that might plague the owner later on. They usually represent the buyer and are paid by the buyer. The inspection usually takes place after a purchase contract between buyer and seller has been signed. Prior to the final purchase you should always inspect the home you intend on buying. Buying a home "as is" is a risky proposition. Major repairs on homes can amount to thousands of dollars. Plumbing, electrical and roof problems represent significant and complex systems that are expensive to fix. Negotiating Price on a New Home It can be difficult to negotiate the sales price with a developer because they may claim their prices are based on fixed construction costs. But it doesn't hurt to try. Experts say builders more likely to be flexible on price at the very beginning and the very end of a development project. Early on, most developers want to move people in quickly so the project picks up momentum. Later, developers may be more inclined to accept lower offers when only a few units remain. If negotiating the price doesn't work, buyers commonly negotiate for better amenities (upgrade carpet, light fixtures, etc.) or lot location. For example, experts say a developer will rarely pass up a deal over a couple hundred dollars' worth of carpeting. An impound account is a trust account established by the lender to hold money to pay for real estate taxes, as well as, mortgage and homeowners insurance premiums as they are received each month. If you are taking out a FHA or VA loan, the lender can require an impound account to pay real estate taxes and hazard insurance premiums, as with a standard loan. Most conventional loans do not require an impound account. Distressed properties or fixer-uppers can be found anywhere, even in wealthier neighborhoods. Such properties are poorly maintained and have a lower market value than other houses in the neighborhood. Many experts recommend that before you make such an investment, first find the least desirable house in the best neighborhood. Then do the math to see if what it would cost to bring up the value of that property to its full potential market value is within your budget. If you are a novice buyer, it may be wiser to look for properties that only need cosmetic fixes rather than houses that need major structural repairs. A distressed property is one that has been poorly maintained and has a lower market value than other houses in the immediate area. Ascertaining whether the property you are interested in is a wise investment takes some work. You need to figure what the average house in a given area sells for, as well as, what the most desirable houses in that area are like and what they cost. Some experts suggest that buyers who take this route try to find a "cosmetic fixer" that can be completely refurbished with paint, wallpaper, new floor and window coverings, landscaping and new appliances. You should avoid run-down houses that need major structural repairs. A smart buyer will find out why before buying it. |
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