Buying a Home? Here are 5 Very Useful Tips to Know

May 4th, 2008 | by gogozip |

Whether the market is softening up or really hot, there

will always be a buyer if the price is right. So if
you”re in the market for a home, be sure you take these
five tips with you before start looking for your dream
home.

(1) Know How much can you REALLY afford. After all your
expenses have been paid, how much money do you have left?
This is called your disposable income. To find out what
your disposable income is, start by writing down all of
your expenses and compare that to your take home salary.
This will give you an idea of the price range you can
afford. It may very well be that your disposable income
is too low at this moment so buying a home right now is
not good idea. If that is the case, you can save more
money for a higher down payment so your monthly mortgage
payments will less, or improve your current cash flow
situation. To improve your current cash situation, take a
look at ALL of your current expenses and see if you can
cut back on anything. I have a friend who could have
easily qualified to purchase a $500,000 home based on her
income. However, she loves fine dining and exquisite
wines. Because she wasn”t willing to cut back on the
wining and dining, she decided that she couldn”t “afford”
the monthly mortgages at the time.

(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. Knowing whether the market is hot
or slowing down in the area you”re looking for will
determine your negotiation power as well as how fast you
will need to act to close the deal. If the market is hot,
you may need to put in an offer above the seller’’s asking
price. Heck, you even not hear back from the seller’’s
agent! If the market is soft, the selling agent may be
following up with you everyday. Don”t be surprised if the
seller even contacts you! In this case, negotiate
whatever you can. As an example, you can ask the seller
to drop the price, pay for closing, include kitchen
appliances or the washer / dryer, etc. I bought an
investment property when the market was slow. The buyer
wanted to sell her property ASAP. I negotiated the price
down by $5,000 and included all the furniture in the
house. I donated the old furniture and got a nice tax
write off. It’’s important to determine the average SOLD
price of a home in the area within the last three to six
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. Getting sales comparison will be difficult
for homes that are still FOR SALE as the prices may go up
or down at closing.

(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.

Knowing these five tips can help soothe any feelings of
uneasiness when purchasing a new home. Don”t be afraid to
ask your realtor or loan agent questions to anything
you”re not sure about. They are there to help you.
After all, this is one of the largest investments you will
make so don”t try to go through the home buying process
blind.

Join in on the real estate discussion and talk with thousands of other home owners to see if owning a home is right for you.

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