What Do You Need to Do Before You're Ready to Buy a Home?
Buying a home can be a delicate process, but if done right it will be highly rewarding in the end. Purchasing a home will likely be the largest investment one will make in their lifetime, so here are some tips to make sure you get the best deal possible:
Tidy up your Credit Score
Finding out your credit score before applying for a home loan will give you the chance to improve wherever needed, getting you a better interest rate and making sure you are even eligible for financing. There are numerous free sites online that you can get a report from, or pick out a good home loan company and lender and they will be able to pull your report for you, usually for free. A good lender will be able to walk through your report with you and point out what needs to be fixed; usually paying off old debt and paying down credit cards will improve your score fairly quickly. Taking care of these items ahead of time will make it easier and quicker to buy a home when you are ready.
Your credit rating matters when trying to finance a home. In most cases, the higher the score and the lower the number of negative items on the report, the better. Checking your credit report before trying to buy a home is a good idea, because many problems can be caught and fixed before applying for a mortgage. Credit reporting agencies sometimes make mistakes, so keep an eye out for anything that may not seem accurate.
Select a Real Estate Agent
Your real estate agent will be your guide through the home buying process and can fill you in on things to know before buying a house. Because of this, it's important that the real estate agent you choose is reputable. It's also important to choose a real estate agent that you can work with closely.
Ask friends and relatives for references as you choose a real estate agent in your area, then interview each candidate to choose the best real estate agent for your needs. If you're wondering how to purchase a home under special circumstances (for example, you want to buy a home in foreclosure or a short sale), look for agents who have experience with this type of purchase.
Contact a loan officer or mortgage broker to find out how much money you can borrow when making a home purchase. Your broker can give you an estimate based on information like your annual income, debt-to-income ratio and other factors. Once you have an estimate, get pre-approved so you can start making offers on your first house in confidence.Start Looking at Listings
The first thing you'll do once you've decided to buy a home is look at the listings in the area where you want to buy. This is a good way to get a sense of prices and types of homes (a log home, perhaps?) available. Looking at pictures can give you a sense of each home's quality, but listings can't compare to seeing homes in person. Make a list of homes that you're interested in buying to give yourself a starting point as you begin your search.
Make a List of Must-Haves
Making a list of must-haves and would-like-to-haves will help focus your search and keep you productive. After looking at a few open houses in the Anchorage area, you should start developing a stronger sense of what you do and don't want in a property. A large kitchen, master bedroom and multiple bathrooms are all common amenities that people often prioritize as they look at properties.
Visit Different Neighborhoods
If you have the addresses of the properties that you identified in the listings, drive through neighborhoods to see where each home is located. Make a note of the pros and cons of each neighborhood, what you like and don't like, and the condition of the homes that you see. Driving through neighborhoods in the area may help you cross some properties off your list or may open up possibilities you hadn't previously considered.
Check Out Open Houses
Open houses are important events for homebuyers. Make a point to see as many open houses as you can to get a sense of what you can expect from homes in your price range.
You don't necessarily have to have a real estate agent to attend open houses, although bringing your real estate agent along will give them a sense of what you like and don't like in a home. Bringing your agent along will also give you an expert eye to point out any potential issues or benefits they may spot.
Start Visiting Houses Privately
Once you're pre-approved, you've found a real estate agent and you've been to a few open houses, you're ready to start looking at homes privately with your agent. Look at the listings and give your real estate agent a few places that you'd like to see in person. Your real estate agent can take you to as few or as many properties as you'd like.
Once you find your dream home (maybe with some acreage?), your real estate agent can help you put down an offer for a home. If you have more questions about the home buying process, talk to your real estate agent. He or she can also answer your questions and give you guidance that can make the home buying process easier.
What did the Home Inspection Show?
A home inspector can provide a lot of insight into buying a home, and even with a tight budget the inspection process is still important. While homes should pass the initial eye-test, an home inspection can help any buyer determine if there are big issues with the home and may provide some negotiating room to get those problems fixed or have the seller reduce the price.
Of course, all financial situations are unique, so speaking with a financial professional or lender about the pros and cons can be very beneficial when making decisions.
How Much Repair and Remodel Work Does it Need?
Most houses, other than new construction, probably need some kind of repair or remodel work to make them feel like home. And for buyers with a limited budget, that may be even more true. Even so, the home should be solid and safe to live in. So remember that cosmetic upgrades, such as paint, carpet and flooring can be done over time, but the house has to be generally in a livable condition and not in need of major repairs that may eat into your savings.
Is Saving up and Paying Cash Really Better?
In a sense, offering all cash for a home may mean getting more for your money. Additionally, most sellers like all cash offers. However, having the cash to buy a home, doesn't mean you necessarily should. Most homes today are still financed with a mortgage. And with low interest rates, this certainly may be a better route than paying all cash for a home. Should you be buying a home with a mortgage, and on a limited budget, make sure you have a down payment, good work history, and other things that mortgage companies may look for. Also, consider getting prequalified for a mortgage, as this will make an offer all that much stronger.
Purchase at a Realistic Price
This mistake is apparent currently with all the foreclosures and short sales going on in the United States; too many people in the early-to-mid 2000’s bought more home than they could really afford, and consequently are unable to keep up on their mortgage payments. When applying for financing, lenders will review a buyer’s debt to income ratio, and along with other eligibility requirements and will base their approval amount on how much they feel a consumer can afford, usually based solely on gross income and only rent and vehicle payments and credit cards.
Items not taken into account are utilities, food and other day-to-day expenses, so generally an approval amount will be higher than a buyer may have originally thought they could afford. Carefully plan a realistic monthly budget and decide what you can really afford, and what you really need. There is no sense paying too much for a home that you don’t use every inch of; just because your lender approves you for a home purchase up to $400,000 doesn’t necessarily mean you need to be shopping for homes at the top of that price range.
Keep your purchase price at a comfortable level so you don’t run into problems down the road; as a general rule of thumb, individuals and families are recommended to keep housing costs less than 30% of their take-home income each month.
Don’t Pay Too Much
Many buyers are enjoying the current market with lower interest rates and lower home prices than we have seen in years, but some jump the gun and purchase a home for more than it is worth with the mentality that they need to snag that home before someone else gets to it.
Working with an experienced real estate professional will be advantageous in this aspect, as they will be able to research comparable properties and give you a precise range of what a particular property is really worth, regardless of what the list price may be. Purchasing a home should not turn into an auction where the highest bidder takes home the prize. Let your Realtor do their research and keep in touch with them, and be patient. There is no sense in overpaying for a home, especially if you do not have plans to stay there for more than a few years.
While trends can change, with current market statistics and trends the appreciation process will be fairly slow and just because you paid too much for a home when you bought it will not mean you can sell it down the road for more than it is worth.
What are the Monthly Utilities?
Utilities are a part of life—especially when you own a home. But keeping utilities as low as possible is important. Generally, the larger the house the larger the utility bills, so consider the size of the home if the budget is tight.
Are the Taxes and Insurance Premiums High?
High insurance premiums and high taxes are things you definitely want to avoid when buying on a budget. Determining what monthly payments you are willing to make in advance can help make your search more efficient. Consider the locations where there are homes you like, and compare the insurance costs and tax rates to help make the best, most informed choice.
Get a Home Inspection & Appraisal
Unless you are purchasing a home with cash, your purchase will require financing of some sort, and most loan programs will require an appraisal. This goes back to not paying too much; an appraisal will be a detailed report of comparable properties and features that have sold recently, and will reveal what a home’s true value is.
An appraisal is important because it will be the golden number that you should not go above when purchasing that particular home, unless you are asking for repairs or closing costs or some other form of seller paid compensation, in which case the final sale price may be adjusted. A home inspection is vital especially for a resale property because it will point out any problems that the home may have that may not be obvious to the untrained eye.
Having a home inspection performed can potentially save a buyer thousands of dollars in repairs and remodeling down the road, or can even give them the means to back out of a transaction if the damage is so extensive as to leave a home unsafe and otherwise uninhabitable.
This can’t be said enough. Too many buyers make the mistake of buying the first home they like, then come to find out after closing that 4 more just hit the market that are cheaper, larger, or newer.
If you find something you absolutely love, view it a couple times, make sure it fits your needs, and have your Realtor keep an eye on it. Depending on the pricing and amenities, chances are it will sit on the market for a bit. In the Anchorage, Alaska and surrounding areas, the average time a home spent on the active market in 2010 was 82 days, almost 3 entire months.
So think things over before writing an offer, with the volume of homes available for purchase, chances are there will be a few during your searching time that will fit your needs just fine.