Preparing To Buy A Home
13 Common Sense Principles
For most people, purchasing a home is "the single largest financial transaction of a lifetime". To insure success, it is important that home shoppers adopt a buying strategy based upon sound principles and common sense. Plunging into the process without a plan, is sure to cost you in the end. The following are proven, seemingly obvious, common sense principles that many home shoppers were forced to learn "the hard way".
Interview and select an experienced, qualified Realtor with whom to work.
- As in any profession, there is a large disparity in the abilities of the people in the industry. Visiting or calling a real estate office and assuming that whomever is on duty is as qualified as any other agent is a gamble. Buying a home is the biggest financial decision of your lifetime. Accepting the "on duty agent" as your agent is a high stakes game of chance that I refer to as Real Estate Agent Roulette.
Don't gamble. Avoid playing Realtor Roulette. How will they assist you? Experience? Resume? References? What will the agent's responsibilities and duties be? What will your responsibilities be? Don't just call or visit an office and accept whomever is on duty as "your agent"! Ask the real estate office manager to recommend an agent for you to interview. Select an agent who is qualified and with whom you feel you will be comfortable. Do NOT select an agent simply because he or she is willing to show you houses right away.
Obtain a mortgage pre-approval from a lender.
It's FREE and you are under no obligation.
- Many home shoppers are so anxious to see houses that they postpone this step until they are actually ready to bid on a house. The reality is, however, that buyers who are not pre-approved are not considered serious buyers by home sellers or Realtors. Homeowners will not negotiate with unqualified buyers and real estate agents tend not to work as hard for unqualified buyers.
Remember, your goal is to be in control. Knowing what you can afford, enables you to shop in the appropriate price range. Knowing what you can afford, gives you negotiating confidence.
Pre-approval defines you as a "ready to buy" buyer.
Home sellers consider offers from pre-approved buyers very seriously.
Home sellers are also much more willing to negotiate on price if they believe, they are talking to a "ready to buy" buyer.
Qualified buyers also get the "red carpet treatment" from Realtors. Agents are willing to work much harder for someone whom they know is able to buy rather than just another "tire kicker".
ALSO if there is a problem obtaining the mortgage you want, you have time to investigate special loans or ways to correct the problem. By seeking pre-approval, you understand your situation and are able to pursue the options available to you.
Becoming pre-approved is simple. Many lenders now do much of the work over the phone without an appointment. They just need your permission to run a search of your credit history.
Defining your needs, goals and deadlines BEFORE shopping for houses.
- How do you intend the home to function for your family? Prioritize amenities and features that you would like your new home to have. How many bedrooms & bathrooms do you need? Would a nice backyard be more important than a family room or home office?
Having these items formulated in your mind in advance will help you to avoid confusion and bad decisions once in "the heat of battle".
Select the community first. Shop for houses only after you are certain that the community's amenities, schools, commuting time, etc. meet your family's needs.
- Shopping for a home can be a very exciting experience and many home shoppers are so anxious to get started that they "jump right in" and begin viewing properties before they are certain which communities and neighborhoods are "suitable" for them.
They spend a great deal of valuable time viewing dozens of properties, they find a suitable home and then discover that the community is not quite right for them. They then move on to a different community where they repeat the process all over again. After a period of time many of these prospective buyers grow weary of the process, they become confused and either end up making a bad decision or making huge compromises because they "ran out of time" and had to make a decision.
Do your homework. Drive AND walk the community, visit the parks, check out the shops, visit the schools.
Read: About Our Communities.
There is a great deal of information available online regarding individual communities and school districts. In New York State, there are "report cards" available for every school district. Click this link to review the NYS Department Of Education - School District Report Cards
Understand how homes are bought & sold in the current real estate market.
- Educate yourself on the purchase process so you understand your options.
Understand agency relationships, how the multiple listing service works (the sharing of listings), how to submit an offer, and get a general sense of the sequence in which events occur.
Know the "right" questions to ask when shopping for a home.
- Besides questions about the merits of the home's suitability for your needs, there are also questions you need to ask which may help you to determine how anxious the home seller is to sell.
Read: Eight Smart Questions Every Home Buyer Should Ask Every Home Seller.
Understand mortgage financing and learn how to evaluate which loan is best for you.
- Most homes are purchased with at least a portion of the sale price being financed with a home mortgage. Therefore, when you buy a house, you also "buy" a mortgage. Consequently, it is important that potential home buyers be as knowledgable about mortgages and they are about home values.
The days of the "standard one-size-fits-all mortgage" are over. Almost every mortgage nowadays is customized to the individual borrower. Most lenders offer 50 - 75 different types of loans.
There is no such thing as "the perfect mortgage". The mortgage that is best for you might be totally inappropriate for the next borrower.
Home mortgages are major financial commitments for long periods of time. A .25 percent can amount to thousands of dollars. It is very important for you to be able to evaluate the different loans and select a mortgage that best suits your needs. It is too expensive to modify mortgages afterwards so it's best to make the right decision the first time.
Take the time to become familiar with financing terminology. You can save as much money by selecting the right loan as negotiating the right price for the house.
It is a gross over simplification to finance a home purchase by just selecting the lowest interest rate.
All the fees and costs involved in the financing need to be included in the evaluation of which mortgage is right for you.
The points, the term, the adjustment period, the index to which the adjustments are linked, interest rate caps, private mortgage insurance premiums, two step loans, tandem loans, convertible loans, pledged asset loans, 3/1 5/1 & 10/1 loans, etc. If you are not familiar with these terms and you are about to apply for a mortgage, you will not be making an informed decision and you just might end up squandering thousands of dollars in mortgage expenses.
BASIC QUESTION: Which 30 year loan is better, a 6.00% with no points or a 5.75% with 2 points?
If you don't know how to determine the answer to that question, then you are shopping for a mortgage blindly.
WARNING: Don't give up everything you gained, through shrewd negotiating on the price of the house, back to the bank by selecting the wrong mortgage.
Know ALL of the costs associated with the purchase of a home.
- Buyers' closing costs, attorneys' fees, engineering inspections, and surveys can add up to a sizeable chunk of cash. Learn what additional expenses are required, besides a down payment, in order to purchase a home.
Read: Home Buyer News - Closing Costs
Stay with one agent as your primary representative.
- The basis for any relationship is honesty & loyalty. A good agent is a valuable source of information and advice. Establish a relationship of trust with him or her. Most full-time, quality agents only invest their time working with homebuyers who have made a commitment to working with them exclusively. If you wish to work with a quality agent, expect to make a commitment of loyalty.
Select an attorney BEFORE you have an accepted offer on a specific property.
- If you don't have a pre-existing relationship with an attorney, interview attorneys in advance. Ask for a recommendation from a friend or your Realtor. If you are fortunate enough to find "the house of your dreams", you want to be able to act quickly and with the confidence that you have qualified legal representation.
Have a plan of how & when you'll be moving (Plan A) ...
and a back-up plan in case thing don't work out (Plan B).
There's no time like the present.
- History shows that people who purchased homes and kept them for three to five years built financial equity much more quickly than those who didn't purchase at all. Trying to analyze "the market" and determine the "best time to buy" is the biggest blunder a home shopper can make. If you truly need and want a home and you can afford to buy one, DO IT!.
"Twenty years from now you will be more disappointed by the things that you didn't do
than by the ones you did do." - - - Mark Twain
PRINCIPLE #13: - The Tip Of All Tips
Buying a home is absolutely NOT an investment decision.
It is a quality of life decision.
- Buying a home is about finding the best place for you and your family to live. It is about having a comfortable place that you can call your own. If you can afford a home and if you feel your family will derive years of enjoyment from living in the home, buy one.
The fact that your home's value appreciates over time and the fact that there are very generous tax benefits for home owners are nice secondary benefits of home ownership but they are definitely NOT the primary reasons you should be buying a home.
© Copyright 2007 Bill Boeckelman Publications