The housing market has rebounded. With the economy on the rise over the past two years it has clearly been a sellers’ market. But signs are beginning to show that as the economy stabilizes and the stock market begins to level out that the housing market will begin to favor buyers. Already home construction has been on the rise in southern Utah. Below are ten tips to follow when considering the purchase of your first home.
1. Save for a down payment
Loan options are popping up all over the place offering loans for little or nothing down. It sounds like not only a great deal but an absolute lifesaver for the first-time homebuyer just starting out in the world. Not all that glitters is gold though and the loan officers touting these types of loans as the new best way to buy a home often don’t draw attention to the extra fees and insurance that come with low downpayment loans.
We suggest saving 10% in order to avoid most of the fees. But, saving 20% will keep buyers from having to pay mortgage insurance. It’s a lot to put away and will probably require a fair bit of sacrifice. However, buying a smaller home, tightening the budget, and looking for ways to bring in some extra income will ultimately pay off big time when it comes to the overall payout of their loan.
2. Remember closing costs and moving expenses
Closing costs include paying the real estate agent, lender, title company, all of the processing and underwriting fees, title transfer fees, the appraiser, the inspector etc. Closing costs are due at closing and are costs that buyers often forget about. Closing costs are not huge expenses but they can be a nasty surprise if a buyer forgets about them until it’s time to close on a house. Sometimes the seller will pay the buyer’s closing costs. Pretty generous right? Not really. What is actually happening is that the purchase price will often be raised the amount of the closing costs and then the seller pays the costs out of their earnings. The buyer is still paying it is just a way for closing costs to be paid over time as part of their mortgage. Either way, buyers should plan for closing costs so they don’t get surprised at the end of the process.
3. Get pre-approved
Getting pre-approved looks like going to a lender, sitting down with them and all the paperwork required to get a loan, and, after looking at all of that, having the lender say, in writing, that the bank will approve a loan. Pre-approval should come in the form of a letter. A pre-approval letter is like your ticket to sit and negotiate at the table of real estate. Experienced agents won’t take a buyer seriously without such a letter and, likely, a conversation with the lender, sellers with any understanding of the home buying process won’t either. Getting pre-approved also ensures that buyers aren’t wasting their time looking at houses they can’t afford and getting into contractual obligations they can’t meet or underestimating their purchasing power. Buyers should just engrave this on their souls as the first step to buying a house.
4. Use a Real Estate Agent
Alright, we need to have a really frank conversation here. There is a fine line between frugality and irresponsibility and not using a real estate agent to buy a house is couched firmly on the irresponsibility side of that line. But, aren’t real estate agents are expensive? Yes, the services of a real estate agent has a price tag that some people find excessive. They see the commission amount and think they can do it for so much cheaper and get a house at a discount. However, using a qualified professional who understands the market, knows how to negotiate, and has experience using the legal process to champion a buyer will add more money to your pocket and reduce more stress than going it alone ever will.
5. Interview your Real Estate Agent
It’s amazing how much thought buyers put into the home they want to buy and how little they consider the person who they hire to make it happen. Most of our business, and real estate business in general, is generated by referrals. Asking family or friends for a referral is definitely one of the better ways to find an agent but its not the only step. When buyers shop around a little bit and interview a few agents, they end up finding an agent that fits their personality style and an agent who will take good care of them.
6. Don’t buy a house you can’t afford
House broke is a fun little term that s the state buyers find themselves in when they buy a house at the peak of their pre-approved amount and now they can’t afford to furnish or heat it. If a bank approves the loan it must mean that the buyer can afford it thought, right? Not necessarily. Banks have a very arbitrary view of a buyer’s financial situation. They determine how much a buyer can afford to pay a month by taking their income and subtracting their debt. Buyers should take the prerogative and determine how much they can comfortably pay toward a mortgage every month independent of a loan officer. ‘Just because you can doesn’t mean you should’, applies in this situation
7. Don’t pass up good deals because of bad paint
Some of the best deals in real estate come with the worst color of carpet. I have watched buyers pass up a house they loved because the wallpaper was outdated. Walls can be repainted, carpets can be replaced, that enormous mural of a humpback whale on the master bedroom ceiling can be covered up. Don’t pass up a great home because it needs some TLC.
8. Run From bad deals
Now that we have established tip 7, remember that it is also unwise to fall too much in love with a house. Paint and carpet can be replaced but the neighborhood, location, and layout are pretty much forever. Take a look around the neighborhood and note if there are boarded up shop windows or if the other houses look run down and under-maintained. Buying a home is in large part an emotional decision but don’t let emotions lead to buying a bad decision. Setting clear goals and sharing those goals with your trusted agent, in the beginning, is a great way to stay focused on what matters most
9. Get a home inspection
Part of ensuring that a home purchase isn’t a mistake is by getting a home inspection. Home inspections done by a professional can uncover major problems that were not evident on the surface. Your cousin Billy who spent a summer working for a drywall contractor does not qualify as a professional home inspector. The majority of the repairs an inspector will unearth will be minor fixes and some can even be negotiated with the seller. However, every once and a while, a major problem surfaces and buyers should just cut and run. A home inspection can also be a great home maintenance tool as well.
10. Don’t buy that new truck until after closing
Closing can take up to a few months and lenders check the buyer’s financial status at multiple steps along the way-not just the initial pre-qualification process. It can be a long waiting process and buyers can get excited about the prospect of owning their new home. They start to think that the only thing their new home is missing is a shiny new truck in the garage. That may just be the perfect addition to the home but don’t make any large purchases during the transaction period. Major purchases, losing or changing jobs, opening new lines of credit, or really just making any major changes to a buyer’s financial situation can cause the bank to reject the loan and for the purchase to fall through. Hold off. Be patient. The process will eventually come to an end and then the new truck can be purchased and enjoyed to the fullest.