The economy is finally showing real signs of improvement, with unemployment down, the stock market up and wages on the rise. The housing market is one of the chief beneficiaries of an economy on the rebound. With interest rates still low and foreclosures falling, sales of existing homes reached an 8 month high in June with no signs of trouble on the horizon.
Now is a good time to buy a new or existing home, but home buyers need to do their homework before signing on the dotted line. Here are 7 common sense tips for getting into a home that’s ideal for your needs:
- Be able to stay in your new home at least 5 years: there are costs associated with the purchase of a home, and most mortgages won’t build equity for several years. If you have a career that requires mobility or plan to relocate in 2 or 3 years, you could lose money on your home purchase.
- Check your credit score: although you can qualify for some loans with lower credit scores, you should have a score of at least 660 to qualify for a good mortgage. Before you go house hunting, check your credit score online at sites like Credit Karma. If your score is less than 660, you might want to take steps to shore up your credit before you apply for a mortgage.
- Don’t get a mortgage you can’t afford: everyone wants a big, beautiful house, but getting a mortgage you can’t really afford could mean having to move or, worse yet, having to foreclose. In general, your annual mortgage payments should be no more than 36% of your annual salary. Fortunately, there are a number of online calculators you can use (like this one from CNN Money) to figure out how much you can afford.
- Save for your down payment: how much you put down on your new home will determine what interest rate you get and how much your monthly payments will be. Generally, you should plan to put down at least 20%. If your new home costs $200,000, that means you’ll need to put down $40,000. If you don’t have $40,000, your best bet is either to buy a less expensive home or take the time to save up for the down payment.
- Don’t assume you have to pay the asking price: home sellers will often accept a bid lower than the asking price, especially if the home has been on the market for a long time. Find out what similar homes in the neighborhood have sold for and whether sellers were willing to drop the price (and by how much). Make an offer based on this research.
- Have the home inspected: a home inspection is not the same as the appraisal which lenders conduct. Before making an offer, you need to know if there are problems with the home that aren’t visible to the naked eye.
- Work with an experienced real estate agent: even when you do your research and are careful, you can make costly mistakes. An experienced real estate agent will be on your side, working to get you the best price on a home you can afford.
Buying a new home can be one of the best and more rewarding experiences in your life, but it can also be a disaster waiting to happen if you don’t do your homework. Be honest about your financial situation and do some good research to make sure your home buying experience is a good one.
For help buying a home, contact us today.