Tips for Buying a Home
For anyone buying a home, the whole process can seem complicated. Take things step-by-step, and you will soon be holding the keys to your own home!
- Before you start house-hunting, figure out how much you can afford. It's tempting to just make an offer on a home you've fallen in love with, but can you afford it? A number of factors are considered in this calculation, including your income, credit rating, current monthly expenses, down payment and the interest rate. Meet with a financial advisor to determine how much house you can buy, and if there are any home-buying programs you're eligible to participate in.
When budgeting a monthly payment, be sure to ask whether the payment amount includes real estate taxes and insurance, or if those costs are billed separately. If you already know which city or county you're going to be living in, research the tax trends to get an idea of how much taxes increase from year to year.
- Shop for a loan. There are many different loans out there to choose from – fixed rate, adjustable, balloon – it's important to understand the different terms. The type of loan can affect your monthly payment obligations both now and in the future. You can save a lot of money by doing a little homework; talk to several lenders, compare costs and interest rates, and don't hesitate to negotiate for a better deal.
- Get pre-approved for a loan. Different from pre-qualifying, a pre-approval is less of a “guesstimate.” Even though pre-qualifying costs less and gives you a quick idea of a price range you can afford, it can be inaccurate sometimes. Pre-approval not only helps make the purchasing process smoother, but also gives you greater bargaining power when you find the home you want – the seller will have no questions about your ability to close the deal.
- Find the right representation. Whether you want the services of an attorney to review contracts for you, or a real estate agent to guide you through the process, find the right professional who will help you find the home that's right for you, at a fair purchase price.
- Start shopping! But before you do, take time to think about what features are most important – from location to size to style – which will help you narrow the field of available homes to choose from.
- When you've found the right home, make an offer. Create a proposal that you feel is your best offer; if it's an existing home, also think about what you're willing to negotiate, if the seller counters your offer.
- Make your offer contingent on a home inspection. This simple step can help you learn more about the condition of the home, and can help you avoid buying a home that needs major repairs.
Home Selling Tips
For many people considering selling a home, the process can seem daunting. How do you make your home look like the best option available on the market? Here are a few tips that can help you make the most of the sale of your home.
- Find a broker that's right for you. For many people, selling a home is the largest financial transaction they undertake; it's important to hire a professional you're comfortable with and feel will act in your best interests.
- Have a pre-listing inspection. This simple step gives you an outsider's point-of-view about your home. Additionally, it can help you set your selling price, and identify any repairs that need to be done before you list your home. Make sure your inspector is licensed and insured, and include a copy of the inspection report, along with receipts for any repairs, with the home's disclosure statement.
- Focus on curb appeal. First impressions count – keep up your home's appearance, inside and out, presenting the great features of your home. Consider a few extra efforts that can go a long way towards selling your home, like painting the most-used areas of the home, de-cluttering, and replacing any worn-looking or leaking plumbing fixtures.
- Get rid of the bad smells. If you have pets, or a smoker in the house, these odors could make a difference in a buyer's interest. Try odor neutralizers, or potpourri; if you're holding an open house, pop a batch of cookies or even a frozen pie in the oven for a “homey” aroma.
- Price it right. It's always tempting to add a healthy markup to the price you paid for your home, and call that your selling price. That strategy doesn't necessarily reflect your home's true market value. Ask your realtor to conduct a comparative market analysis; this report shows the prices that comparable homes in your neighborhood recently sold for, how long they were on the market, and the current inventory of comparable homes currently for sale.
Frequently Asked Questions
Q: As a first-time buyer, should I wait until the prices go lower to buy a home?
A: No. If you continue to wait, you may never be able to afford to get into the housing market. Most economists suggest that the bottom of the market has arrived and we’re still seeing mortgage interest rates at historic lows. Once you become a homeowner, you are able to take advantage of the tax benefits that homeownership offers, and you begin to build equity in your property that you can eventually use to sell your starter home and move into a bigger house which is an integral part of personal financial planning and developing wealth for your family.
The bottom line is that it’s virtually impossible for most of us to time the market – whether that’s the stock market or the housing market. Buying now means you’re buying at a very low price (which may or may not go lower, but as the economy improves, prices should stabilize and then head higher). Buying now means you’re still getting great financing options. Buying now means you don’t have to wait to enjoy a home that fits your needs and will begin building long-term household wealth.
Q: Isn’t it better to “play it safe” and keep renting until things are more certain?
A: Your safest bet is to actually buy a home. Here’s why: studies show that owning a home is the best way to build household wealth. The sooner a person owns a home, the faster they begin to build up equity and wealth. When you buy a home, you are also purchasing price stability, knowing that you will pay the same monthly payment for the life of your 30-year mortgage.
When you rent, your monthly payments are usually not much less than if you owned. You have little or no leverage over price hikes or eviction if a landlord decides to sell. And, at the end of 30 years, you’ll continue to pay rent. You don’t receive any tax benefits from paying rent, nor do you accumulate any price appreciation as you pay down your principal.
Q: Should I invest my money in the stock market or use it to buy a home?
A: Buy a home. Purchasing a home is by far the best long-term investment.
When you buy a home, you are leveraging your investment, or putting down a small amount of money to earn a big return. For example, say you use $10,000 to purchase a $150,000 home, and the house appreciates five percent during the first year. After one year, the house would be worth $157,500 – a gain of $7,500. Your annual return on your $10,000 investment would be 75 percent.
By contrast, putting the same $10,000 in the stock market and posting a similar 5 percent gain would only net a $500 return on investment.
As a homeowner, your savings grow in two ways. Every year a greater portion of your monthly mortgage payment goes to the principal, reducing the overall loan amount. Secondly, your home appreciates over time, making it one of the very best financial investments. Not only is homeownership a stepping stone to a future of financial security, but it also helps to build neighborhoods and strengthen communities. It is truly the cornerstone of the American way of life, and the fulfillment of the American dream.
Q: Should I wait to buy a home until interest rates go down further?
A: Interest rates have been ranging in the five and six percent ranges for a number of years. These rates are extremely favorable for buyers where historically eight percent was considered a great rate and 12 to 15 percent mortgages were common in the 80s and 90s. Waiting to time the market is a dangerous – and losing – game. Even those who follow the market for a living can’t figure out when interest rates will bottom out.
Because interest rates are near historic lows, it is much more likely that they will head higher in the future, as opposed to moving even lower.
Home prices don’t necessarily move in unison with interest rates. If you decide to roll the dice and wait to purchase a home, and the price dropped $10,000 from where it is today, you could still end up losing money. How? If interest rates were to move up a half point during this period, the reduced home price would still have a higher monthly payment over the life of the loan.
In short, the smartest and safest time to buy is now. We know that interest rates are low today. We know that home prices are down. We know that there are plenty of homes to choose from. We know that sellers are eager. Any or all of these favorable variables could change for the worse six months from today.
Q: Should I wait to sell my house until I can get the same price my neighbor sold their house for?
A: No. It’s always better to trade up in a buyer’s market like the one we are in now; in today’s buyer’s market higher priced homes are also dropping in price. So even though your home’s value may have fallen, the price of higher-end homes has also dropped.
For argument’s sake, let’s say that your $300,000 home is now worth $270,000, and a $500,000 move-up home has also dropped 10 percent in value and is offered for $450,000. If you sold your home today and purchased the larger house, the difference in price would be $180,000.
If you waited until the value on your home increased and sold it at $300,000, chances are that the same move-up home would also move up in price to at least $500,000. So the price difference between the two homes is now $200,000, meaning you would pay $20,000 more for the same home. It’s also more likely that, by jumping into the market today, your savings would be even greater because consumers have much more bargaining power when shopping for higher-end homes in a buyer’s market.