8 TIPS FOR NEW HOME BUYERS
Everyone wants to own a dream home at some point in their life. But it can be one of the biggest and overwhelming challenges of their life. Real estate matters are complicated. But here are some general tips to keep in mind when going through the process of home ownership.
1) Solidify your Finances
Getting a mortgage means that someone is going to lend you the money to buy your home. In the U.S., most homes go for an average of $400,000.00, and even more in New York. It can be difficult getting a lender for that much money and your finances will be under the microscope.
Banks rely heavily on your credit scores so make sure you check them before applying for a mortgage. Your credit scores will be reported on what’s called the FICO model, as a number between 300 and 850. Score over 760 will earn you the best rates and terms, while scores under 500 are almost always too low a credit score for mortgage approval. The higher your credit scores, the less you’ll pay and the more money you’ll save over the life of your loan.
Also, figure out how much cash you have to cover the down payment and the closing costs. If you’re way short on available cash, you may want to wait until you can save it up.
2) Stick to your Budget
Develop a list of your regular monthly expenses and add-in all expenses related to your new house (monthly payments including mortgage, property taxes, homeowners insurance and mortgage insurance). There are lots of online calculators that will show you estimated payments for the house price you choose.
Now take your total monthly expenses and divide by your total monthly income to get your debt-to-income ratio. The bank will look at that number to decide whether you can afford a house; 43% is the magic number to stay under. If you’re under 36%, you should receive much better terms and interest rates.
3) Get pre-approved for a Mortgage
A mortgage pre approval isn’t a necessity when you want to shop for a home, but it makes things much easier and helps you get a feel for what the experience will be like. Some sellers won’t give your offer the same weight as one from a pre-approved buyer; in fact, some won’t even show you their home without that magic piece of paper (or email).
While it’s tempting to simply go with a recommendation from a trusted friend or relative or get a mortgage from your current bank, it’s critical to research and shop around to get the best possible deal. Get quotes from a range of mortgage originators, including mortgage companies, national lenders, and local banks and credit unions (which often offer the most competitive rates). Read reviews about each potential lender and don’t be afraid to ask the loan officer what their commission is on your mortgage. Typically, the higher the loan officer’s commission, the more the borrower can expect to pay in either a higher interest rate, or in fees.
4) Find a Trusted Realtor
A realtor can provide valuable information on market conditions, pull up comparable sales to help you see whether a house is worth the asking price and whether it’s been sitting unsold for a while, help you prepare your offer and counteroffers, and work through any sticking points that might develop. They can also suggest available homes in the best neighborhoods or school districts if you’re new to the area, and may even have access to homes which haven’t yet been listed publicly.
The right agent can make all the difference between a smooth search and buying experience, or a frustrating one.
5) Go House Hunting!
Finally! This is what many consider the fun part but can also be just as stressful as getting a mortgage. Be mindful of any timetable you may be working with since it normally takes 30-45 days to close on a new house. If you want to be settled before the start of a new school year, or your previous house is on the market (or your apartment lease is expiring) and you have to be out by a certain date, you may not have the luxury of searching for months on end.
Making a list of your necessities and dealbreakers may help you quickly eliminate the ones that aren’t right for you, and focus on the ones that are.
6) Find a Lawyer
Once you’ve found the one, talk to a real estate attorney. Don’t just hire the cheapest one you can find; this is an expensive transaction you don’t want to mess up. Get recommendations and interview each of the possible candidates before making a decision. Also consult with your realtor; they probably worked with all of the attorneys in the area and can give you good advice.
A real estate lawyer doesn’t just handle one specific legal issue. They can review and advise you on all of the steps involved in the purchase agreement and closing, preventing any expensive missteps. If you’re going to spend the money on an attorney, be sure to put their services to good use.
7) Home Inspections and Appraisal
Once you have given a down payment on the home and/or agreed to purchase it through a contract of sale, inspect it! No purchase should be completed without having a house inspection performed, and no contract should be signed without a contingency clause saying the house must pass inspection. This will assure you that there are no hidden structural or functional problems with the house, and will give you ammunition for any contingencies which must be written into the contract.
A home inspection could find minor problems like electrical or plumbing issues that can easily be repaired, or may find more serious problems like mold or a cracked foundation. It’s up to you whether the issues are serious enough to back out of the deal, to demand that the problems be repaired before closing, or whether they are worth fixing yourself.
8) Close the Deal!
You’ve finally made it. Purchase agreements are done, inspections are complete, contingencies have been met and financing is in place. All that’s left is signing mountains of paperwork and receiving the keys to your new house.
If you have an attorney, they should be with you at the closing to read all the documents before you sign them, and if you can’t attend an in-person closing you can assign your power of attorney to another party.
Yes, you will be nervous and even bored at a closing, since you’re making a huge commitment, excited about taking possession of your new home, and sitting there for an hour or more signing document after document. But it’ll be worth it once you have those keys and move into your new home!
