Checklist for a First-time Homebuyer.Buying a new house is exciting … and absolutely daunting, especially for those who are new to process. It doesn’t help that the current housing market has added many variables to your house hunt. How can you simplify things?
The current housing market may be a mess, but there are still plenty of people who are buying, and many of them are getting a good deal. But the process is tricky, and even the best deal can turn into a nightmare if you don’t know what you’re doing.
MainStreet consulted the experts to put together this checklist for First-time Homebuyers.
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Get pre-approved.Getting pre-approved, as opposed to simply getting pre-qualified, for a mortgage should be done before you start looking at houses (or, even, online listings for ones). By getting pre-approval, you will learn, for starters, if you can actually buy home and, secondly, how much you will have to spend. The lender will tell you during the pre-approval process the maximum mortgage you will qualify for and, consequently, what your monthly mortgage payments might look like. This information is necessary, but, beyond that, it sets a homebuyer’s expectations.
As mortgage consultant Andy Gagliano points out, “If [the homebuyer] can only qualify to buy a house in the $175,000 price range, but he goes out with his realtor and looks at $225,000 houses, then the [the homebuyer] will have a hard time ‘settling’ for a $175,000 house.”
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Define your own comfort zone.Keep in mind that you may not want to opt for the maximum mortgage your lender is offering. “Usually if [homebuyers] buy at the price a lender tells them they can afford, they become house rich and life style poor,” Julie Fisher of Beth Wolff Realtors says. This is why it’s important to pay attention to your current spending habits, your personal wants and needs and long-term goals or desires. Remember, where you live will greatly influence your quality of life. Don’t get so caught up in jumping through financial hoops that you forget to consider the less tangible factors.
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Consider Additional Expenses.Realtor.org suggests that you have 20% of your prospective house’s purchase price saved as a down payment before you proceed with the process. However, you should also make sure that you have money set aside for more than just the residual monthly mortgage bills.
“One of the main things that home buyers seem to forget (or underestimate) are the other expenses that come with a home,” attorney Richard D. Williamson says. “The prospective buyer should request an itemization of all such fees and even copies of the most recent bills for HOA fees, property taxes, special assessments, power bills, water charges, gas bills, sewer fees, garbage fees, and recycling costs.” These additional costs often stay the same from owner to owner so you’ll get a better baseline for home much you new home will cost once you move into it.
Don’t forget to ask your realtor to help you calculate closing costs, including taxes, attorney fees and transfer fees, which can average between two to seven percent of the home price. This can amount to thousands of dollars. And if you elect to buy a fixer-upper? Well, that’s another slew of problems.
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Get a realtor.Sure, realtors are going to suggest that you hire a realtor. However, in this complicated housing market, it’s a good idea (especially if you are a first time homebuyer) to seek professional help. They’ll help you get a better handle on all those additional expenses and they may be able to score you a better deal because of them. Also, good realtors won’t require you pay them; they’ll get a cut of the sale price.
How else can you tell one realtor from another? First, verify their realtor’s license throughyou’re your municipal Department of Real Estate Records. Or, simply ask a potential agent for identification up front (reputable brokers will have no problem immediately producing their credentials). It’s good to go with realtors that have been suggested to you by trusted friends or acquaintances. However, you can also judge a realtor by their results. “Get an agent with tons of transaction experience,” Broker Mike Sher recommends. “[This is] a realtor who sells at least 24 homes a year.”
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But do your own research.Having a realtor doesn’t mean that you don’t need to do your homework. For starters, realtors are prohibited by Fair Housing Laws from telling you things about school systems or crime rates. These are things you’ll have to learn on your own (see next slide for more info). Secondly, it’s in your best interest to have a general knowledge of asking price - especially if your realtor shows you a house that their agency is trying to sell. You can review the closing numbers of comparable homes in your prospective neighborhood on websites such as Zillow, PropertyShark.com and StreetEasy.
“These available numbers usually trail the market by 3 months,” Edward Mermelstein, a New York real estate attorney, points out. This is why a good general rule of thumb is to offer low, around 10 to 15 percent below current market price. “Pricing is generally based on contracts signed 3 to 4 months before the listed price and don't necessarily reflect the most current real estate climate,” Mermelstein explains.
Other online search tools, such as ZipRealty’s “Price Track” can help you monitor deals in your potential neighborhoods.
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Research locations, not houses.Often people become so preoccupied by a particular property that they don’t think about the community that surrounds it.
“Location, location, location is still the number one consideration when buying a house,” Nell Kirbyof Sutton Group Bayview says. So, figure out the area you want to live in before you start house-hunting. Once you have a general idea of where you want to build your nest, seek out specifics. Call the police department to find out if the area is safe. Check flood maps to make sure you’re not in flood zones. Ira Freirech of Best Buyer’s Broker Realty even suggests getting an Electromagnetic Field reading from your home inspector so you know of any potential carcinogens. And many realtors suggest visiting ParentsforMeganslaw.com to check for predators.
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Get a home inspection.Getting your new home inspection before closing goes without saying, but you can improve upon the process by using a licensed inspector who has an engineering degree. “Cost may be a little bit more, but you will save far more by paying for the expertise,” J. David Floyd, a broker for Crye-Leike Comercial, Inc., says.
However, don’t wait for the final home inspection to inquire about potential house defects. “We had a situation recently where the seller’s agent failed to disclose up-front that the AC was not working,” Jacob J. Gabrie of Town Center Realty, Inc, explains, adding that the problem wasn’t discovered until a last minute home inspection. “This could have sunk the deal, because it was a short sale and the bank was on tight deadline.” To avoid such situations, buyers should ask outright for written verification of potential problems.
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Understand what you’re getting with a short sale or foreclosure property.Buying a property in foreclosure or short sale can net a nicer price, but prospective buyers need to know exactly what it is they are purchasing. Many of these bank-owned properties are usually sold “as is” so the buyer will have to pay for any work required or, even, delinquent fees acquired. (And many owners of foreclosure or short sale properties are likely to have skipped out on a lot of upkeep.)
Additionally, those buying distressed property should research just how much of the neighborhood is owned by the bank. “If the local market is being driven by distressed sales, it’s important to know not only how many foreclosures are currently on the market, but also have many NODs (Notice of Default) and Notice of Trustee Sales have been filed,” Greg Cook of the First Time Homebuyers’ Network, says. “These are the future foreclosures and will impact the stability of the neighborhood.”
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Don’t buy the furniture before you move in.The process of buying a house can be long, drawn out, unexpectedly delayed or abruptly ended for a variety of reasons. So, don’t go buying a new living room set the second your offer has been accepted by a seller. This isn’t simply because you will be left with no place to put your new furniture. In fact, the last thing that a prospective homeowner wants to do is incur additional debt. To do so would jeopardize your pre-approved mortgage rate.
“Realtors need to advise first time homebuyers not to do anything that will change their credit score,” Jody Keating, owner of Connective Realty, says. “Don’t run out and buy a new car, open a store account, change jobs or even change banks. All of these things can drastically affect your ability to close.”
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Keep an emergency fund.No matter how on point your cost estimates were or how diligently you monitored those aforementioned additional expenses, Murphy’s law is always in effect and something (whether it be a maintenance issue or unrelated personal expenditure) will come up. This is why you don’t want to drain all of your savings before closing your home. Or, more pointedly, you don’t want to close on a home that will drain all of your savings.
“You should really have three to six months of income in a bank account to handle any of these problems,” Brian J. McGuire, a financial planner at Bernard R. Wolfe & Associates (and recent homebuyer) advises.
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Have an exit strategy.“First time buyers may not realize how hard a property is to sell or that they may run into hardships and need to sell,” Kimberly Smith, the founder of CorporateHousingbyOwner.com, points out. That’s why you should always consider your exit strategy. If and when you need to relocate, will you be able to sell the property you are about to buy?
Generally speaking, most realtors suggest purchasing a property if you expect to stay in that home for at least three to five years as the costs associated with the house and subsequent moves can be so high. This is another reason why it’s so important to consider the long-term before you start your search.
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Enjoy the process.Yes, buying a home can be stressful, but those who are prepared and ready for the process can actually find it quite rewarding. After all, once you purchase a house … well, then you’ll have a house.
“I like to remind my clients that once they buy a home, they no longer have to deal with a chain-smoking, negligent landlord that parades around the property and scares small children,” Jon Polansky of Sotheby’s International Realty says. “This comforts people.”
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