Few people can afford to buy a house outright. Fortunately, there are many financing options out there that you can consider. Many of these options are favorable towards buyers as well due to the fact that consumer confidence has been low ever since the economic downturn. The following are a few of the financing options that may be available to you:
- Conventional loans – Most banks offer conventional mortgage loans to buyers, but it’s important to shop around and compare terms. However, you will likely have to pay mortgage insurance if you don’t put down a 20 percent down payment. The terms will depend heavily on your credit history as well.
- FHA loans – FHA (Federal Housing Administration) loans were established as a way to help first-time homebuyers. Because they are backed by the federal government, they offer better rates than most traditional home loans, require smaller down payments and are easy to qualify for.
- Home builder and developer financing – Builders will often offer terms that are below market rates and that are more favorable than bank loans. Some builders will even sweeten the deal by offering 95 percent financing, payment of closing costs, cash incentives, deferred mortgage payments and more.
- VA loans – If you are or were a veteran, then you may qualify for a VA loan, which offers 100 percent financing with no down payment or mortgage insurance requirements.
While there are many home financing options available to you, it’s important that you figure out your budget first before you decide to apply. Remember, just because you qualify for a certain amount, doesn’t mean you can afford it.
Once you’ve decided to buy a home, there’s no doubt that you’ll want to start househunting right away. However, you should slow down just a little bit. Before you dive into the homebuying process, the first thing that you should do on your home buying checklist is to get pre-approved for a mortgage.
The Importance of a Mortgage Pre-Approval
One of the first things you’re going to do when you decide to buy a house is to figure out what your financial situation is so that you can determine a budget. Otherwise, how will you know what price range to look in? However, the absolute last thing you’ll want to do is find the house of your dreams only to find out that you don’t qualify for the amount you need when you finally apply for a mortgage.
Not only will you be unable to buy the house you want, but you’ve just wasted a significant amount of time looking at houses that may have never been in your price range to begin with.
To avoid this issue, you should get a mortgage pre-approval before you begin looking at houses. A pre-approval is a written commitment provided by your lender. Not only will you have a figure that you can use as your budget, but a pre-approval can come in handy when negotiating with sellers since they prove that your loan approval won’t fall through.
Getting a Mortgage Pre-Approval
To get a mortgage pre-approval, you’ll need to provide your tax returns, prove that you are employed, provide your bank statements, and have a solid credit history. For the mortgage to be secured following pre-approval, an appraisal has to be done of the property.
There are few more exciting moments in life than having your bid accepted when buying your first home. Unfortunately, it’s not as easy as just signing on the dotted line and getting the keys. Once your bid is accepted, a closing date will be set. On the day of the closing, a lot will need to be done. The following is what you can expect at closing:
- You’ll do a final walkthrough – Usually, you’ll do a final walkthrough 24 hours before the date of the closing to make sure everything is in order. A final walkthrough is necessary to make sure no problems have popped up.
- You’ll meet with a group of people – Expect a small group of people to be present at the closing, including the seller, their real estate agent, your real estate agent, their attorney, your attorney, a title company representative, and a representative of your bank or lender.
- You’ll need to bring paperwork – As the buyer, you will be required to bring a copy of the contract, home inspection reports, proof of homeowner’s insurance and a government-issued photo ID.
- You’ll need to bring your down payment – Find out before the date of the closing how you should pay. You may be able to perform a wire transfer ahead of time. In some cases, you may need to get a cashier’s check.
- You’ll need to pay several fees – Bring your checkbook because you’ll need to pay several different fees, including title search fees, loan origination fees, appraisal fees and more.
- You’ll need to sign documents – One of the reasons your lawyer should be present is because you’ll need to sign numerous documents to make the purchase official.
Once you’ve made an offer on a house, you’ll want to schedule a professional home inspection. A home inspection is a visual evaluation of the house that identifies any problems or potential problems that could end up being costly to repair or replace. Basically, a home inspection helps protect you from buying damaged goods. The following are a few tips for ensuring a successful home inspection:
- Hire a reputable professional – Not all home inspectors are legitimate. Make sure that when you look for a professional home inspector that they are fully licensed to perform inspections within the state. You should be able to look up customer reviews as well. You should also find out how long they have been working as an inspector and what they did before. It’s usually a good sign if they used to be a contractor or builder.
- Be present at the inspection – Make sure that you go through the home inspection with the inspector. This will allow the inspector to explain what issues they are looking for, what kind of issues they’ve found and how problematic those issues are. While all of this will be included in the final report, it will be easier to understand if you’re told in person. Being there will also allow you to ask questions on the spot.
- Use your seller’s disclosure statement – Sellers are required to disclose everything that they know about the house. Provide the inspector with this statement. They’ll be able to look at known issues to see how bad they really are and to determine if there are other related problems.
These are just a few tips that you should keep in mind when scheduling a professional home inspection.
Once you’ve made the decision to invest in a new home, odds are you’ll do a little bit of research on your own in search of helpful home buying tips. However, there are a lot of misconceptions and half-truths out there that you don’t want to fall for. The following are three common home buying myths to watch out for:
- You have to put down 20 percent – You will need to pay a down payment; however, it doesn’t necessarily have to be for 20 percent of the home’s price. If you’re able to, then you should. However, there are loan programs that only require 3.5 or 5 percent down payments. You’ll just be required to pay for mortgage insurance if you can’t put up 20 percent.
- A 30-year mortgage is the best option – When comparing 30-year mortgages to 15-year mortgages as well as other terms, you may think that a 30-year is your best option since it will cost less on a month-to-month basis. However, there are a few factors to consider. First of all, while you may pay less month-to-month on a 30-year loan, you’ll end up paying more in interest over that term. Secondly, a 30-year mortgage only makes sense if you’re planning on staying in your house long-term.
- Buying a house is a great financial investment – Buying a house is more affordable long-term than renting and you’ll be investing in an asset. However, it’s important to understand that you shouldn’t be investing in real estate if you expect to make large long-term profits. Homes in the U.S. only appreciate around one percent above inflation. Buying a home is a good investment, but not for that reason.
These are three common home buying myths debunked. Contact us at Randy Lindsay for more professional home buying tips today.
One of the most important home buying tips that any real estate agent will give you is to hold off on signing on the dotted line until you’ve had a professional home inspection done on the house. The following are a few reasons why a home inspection is so important and why you should insist on one:
- The house may be a money pit – Just because the house looks like it’s in tip-top condition on the surface doesn’t mean there aren’t any hidden problems. A professional inspection may reveal a faulty foundation, plumbing issues, problems with the wiring and other potentially costly problems that you don’t want to be stuck with when you buy a house.
- It may help improve your bargaining power – Things that may be uncovered during a home inspection could potentially be used towards your advantage when negotiating with the seller. For example, maybe the furnace is a lot older than you thought, which means that energy costs are likely to be higher than normal and that it’s likely going to need to be replaced in the near future. You may be able to get the seller to lower the price if you have information like this to bargain with.
- The seller may perform needed repairs – Because you don’t want to move into a house that’s on the verge of falling apart, a home inspection will allow you to figure out exactly what’s wrong with it. You’ll usually be able to get the seller to make those repairs before you purchase the house, or at least to remove the cost of those repairs from the total price.
These are just three of the reasons why you should get a home inspection before buying a house. Being insistent can really pay off, or help you avoid a bad situation altogether.