45 Tips For Home Buyers
9-minute readSeptember 21, 2020
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- To avoid PMI insurance, you’ll want to save at least 20% for a down payment. Also, most conventional loans require a larger down payment of 5% on a one-unit primary residence, though there are some 3% conventional loans available.
- For FHA buyers, don’t get discouraged if everyone’s asking for conventional terms. Keep it moving or try to state your case with the seller’s agent. Even if they don’t bite right away, a conventional deal could fall through and they’ll remember your appeal. Yep, this has happened.
- Begin working on improving your credit 1 – 2 years before you think you may want to buy a home. Pay off as much debt as you can and dispute items that are incorrect. Pay all your bills on time for a year at minimum.
- Pay off any IRS debts or make sure you have arrangements in place. Since the IRS can place a lien on the home once you purchase, lenders are skittish about those who have this debt. Disclose this immediately in your first call to a lender and ask what your options may be. Sometimes you’ll be able to close if you bring a payment for the IRS to the closing or pay them off before you close.
- The minimum credit score to obtain a mortgage is around 620. Though there are some exceptions and programs, this seems to be the average. Remember that the lower your score is, the higher your interest rate will be. A score of 680 or higher is ideal. You can get a free credit report at Rocket HQSM that will help you monitor your progress.
- Be prepared to show 3 months of bank statements and explain the money coming in and out of your accounts. You’ll especially have to account for any lump sums. The paperwork can be daunting to some, and you’ll have to show a lot of documents. This leads to the seventh tip.
- The loan officer and underwriter will get deep into your financial affairs; this is normal. Remember that you’re borrowing money and therefore you must share your personal financial situation in depth. Don’t get frustrated, be honest and answer all their questions. They’re trying to help you, so be nice to them.
- Call your insurance agent to find out what the home and car insurance would be in the prospective areas you’re looking in.
- Understand property taxes in the area. For example, if you buy a home where the previous owner lived for 20 years, their property taxes are much lower than what yours will be in the same house. Check the property taxes of similar homes sold throughout the last year in that area.
- Escrow is simply where your mortgage lender holds money you send them for your future expenses such as property taxes and insurance. Include your escrow money along with your monthly mortgage payment. The lender will put the extra cash in your escrow account where they’ll hold it and then pay it when it’s due. I know paying your taxes yourself sounds good now, but it won’t when you have to come up with a few grand all at once.
- Your mortgage payment shouldn’t be more 30% of your total household net income. Lenders will loan to you based on your gross income. This is good for getting qualified for the loan, but not good for you to manage your finances. Do your personal financial planning of what you can afford based on what you take home (i.e., your net income).
- All deals don’t go as planned. You may have to pay for more than one inspection and/or appraisal. Whatever happens, don’t skip the inspection. Some are tempted to skip it after having paid for one for a failed deal. Major mistake! Always get your prospective new home inspected no matter the cost.
- Have some money set aside for the unexpected.
- Do the math on how much you’ll pay in interest over the life of your loan. Place your home in your complete financial life plan and develop a payoff strategy so you don’t have to pay all the interest back. If you can afford it, get a 15-year mortgage. If not, get a 30-year mortgage and double up on principal payments when you can.
- Make sure your realtor keeps you abreast of any information. But don’t just rely on them, do your own research as well.
- Understand that the realtor’s company holds a deposit (generally $1000), so be prepared for that expense.
- Realtor commission is a standard 3%, but you don’t have to pay this. You can negotiate 2 – 2.5%, but I wouldn’t go below 2%. Negotiate this amount before they begin looking for homes for you so they know up front what their commission will be. It’s not a good idea to have them go all around the city for you and then try to cut their commission once they find you a home.
- Don’t be afraid to ask your realtor any questions.
- As the buyer, you pay your agent 3% and the seller’s agent 3%. Yep, 6% off the top unless you negotiate a lower commission.
- Be careful with family. Maybe your uncle, cousin or sister is a real estate agent and the family will give you the side-eye if you don’t hire them to sell you a home. This guilt could backfire on you in a major way. We’re less likely to hold family members accountable when they don’t perform as they should in our business affairs. On the other hand, we have no problem calling a stranger out who isn’t doing their job properly. Find any excuse you can to avoid hiring family unless you’re okay with whatever the outcome and experience results in. If you need help finding an agent, check out Rocket HomesSM for a vetted professional.
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- Don’t expect your search to be like a television show. In fact, it’ll most likely be the complete opposite. Negotiations vary by area and depend on the market. For example, I thought we’d put out an offer and the seller would negotiate with us. Nope, they just went on to the next best offer. There was high demand for their home so they could do that. If you have a good offer and there’s low demand, they may negotiate. See, not like TV at all!
- You’ll have to offer the asking price or higher in order to compete with other buyers in a market that’s high demand. Yes, I said higher.
- Don’t buy a home that has no equity. You don’t want to go in at the top of the market price for that home.
- When looking for homes, drive around the neighborhoods to compare road conditions, how people keep up their lawns, etc. Go a couple of times at night as well to see how quiet or lively it’ll be.
- If you have children, check the quality of the schools in the area and where the street boundaries are for your school of choice.
- Check to see if there are monthly or yearly homeowners association (HOA) fees, co-op dues or any other fees. Your real estate agent should be able to tell you.
- Don’t be skittish about paying dues in a community. Dues help communities remain vibrant and well kept. Do the math to make sure you can afford it, and research how often they go up.
- Check if there’s a block club, communities with active block clubs or associations. For more information, ask to talk to the leader about the neighborhood.
- Make a list of wants and needs, but be open minded and flexible.
- Don’t get emotionally attached to the homes you visit for the reason above. If you don’t get a home you really wanted, consider that it wasn’t meant to be and move on. I learned this after the second home. No matter how perfect it may seem, have an objective mindset until the deal is done.
- Have patience when looking for a home. It could take 3 – 12 months to decide and close on a home. Yes, seriously. This doesn’t mean the buyers are being picky, it completely depends on the market and what’s available.
- For things you find that must be repaired yourself, look up the costs before you agree to buy the home. I knew that concrete driveway repairs were expensive, therefore I wasn’t interested in purchasing a home with major cracks in the concrete. Also look out for major items like the furnace, basement waterproofing, roof repair, etc.
- Don’t settle if you don’t like the home. It’s a major purchase that you’ll literally have to live with. If you don’t love the house, don’t buy it!
- Try to set aside at least $1,000 in your budget for movers. However, you may not be able to swing it with a down payment and other expenses. In this case, at least feed your free moving crew pizza!
- Start packing the moment you think you want to get a new home. Seriously, I don’t care if it’s a year out. You can pack the items you haven’t touched all year and set the boxes aside in the basement or other storage area.
- Label your boxes really well. Write on the sides and tops what’s inside the box, and keep items from each area of the house together so it makes unpacking easier.
- If you have enough people, assign them each a room to load up at the old house and unpack at the new one. Don’t try to do everything yourself.
- Prep your furniture by wrapping your sofas, wood tables and all other furniture in plastic so they aren’t scraped or scarred in the move. Also wrap your mirrors and other glass furniture in bubble wrap to protect it during the move.
- Remember that movers may not get everything, so still be prepared to move some items. The mistake many make when moving is expecting the movers to be able to move everything in the time allotted. This doesn’t happen often unless you’re ready to foot a pretty hefty bill. In addition to a movie truck you may still also need a U-Haul or some friends with trunk space.
- Find out what day trash and recycling pickup is on your new street because you’ll most likely have a lot of boxes or trash to dispose of after moving. You may be penalized if it sits on the curb too long.
- Ask about any special rules like no parking on the street between certain hours of the day.
- Have a cleaning service go in and put a good shine on the new home. Never move into a home without cleaning it first. You may also need to pull up old carpet, replace blinds, etc.
- Have an alarm installed; it doesn’t matter how safe or remote the neighborhood is.
- Make friends with your neighbors. Many people will say something like, “I just keep to myself,” but you may need your neighbor in an emergency (or they may need you). Neighbors also share what goes on in the community and can give you resources for your home.
- Enjoy the process. The more you know, the more you can be prepared for what comes next. Not only does this reduces anxiety and frustration, but it also allows you to have fun with your home search.
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