Make Home Buying a Smart Process
The purchase of a home is a major financial commitment. Don’t let the excitement of looking for your dream home prevent you from following these common sense tips:
1. Have an Upper payment Limit in mind and try not to extend it. Before you start looking, carefully analyze your expenses and decide how much you can afford to pay for a home. Contact a trusted Mortgage Advisor for the Upper Limit of what you can afford. An often-cited old guideline indicates that your mortgage payment, insurance, and property taxes should not exceed 28 percent of your gross income. Today’s underwriting standards often allow much higher ratios. Allow the Lender to advise you on how much Mortgage that you can qualify for, however settle on a monthly all inclusive mortgage payment that you are comfortable with. Keep in mind that there are lucrative tax deductions for home owners that include your mortgage interest and Property Tax payments.
2. Consider how your down payment will impact your home’s financing. Down payments typically range from 5 to 20 percent of the total purchase price. A lower down payment makes it easier to purchase a home, but also increases the size of your mortgage. If possible, you should aim for a down payment of 20 percent so you don’t have to obtain private mortgage insurance, which typically runs from .25 to 1.25 percent of your total mortgage amount. Keep in mind that you will also have to pay closing costs, which can equal between 1.5 to 3 percent of the Purchase Price.
3. Familiarize yourself with housing prices in the area. A Realtor can provide a comparable market analysis, which shows the sale prices of homes in the area. This analysis can give you a feel for whether the asking price of a home is reasonable for the area. Be cautious of on-line value estimators….they are frequently inaccurate. Ask the advice of a professional that will know the area and has a sales history.
4. Location – do not compromise on location……proximity to power lines, backing to highways or commercial areas can seriously affect your ability to resell the home at future date. Consider the schools if you are raising children. If you are purchasing a condominium or townhome, find out if the declarations or rules limit your enjoyment of your property. Examples to consider are: Pet restrictions, parking restrictions, commercial vehicles and trailers, hardwood floor restrictions in condo’s etc.
5. The Mortgage Approval process includes a Professional Appraisal that will help insure that you are not overpaying for the property. Be cautious of settling for a higher price than the appraised value.
6. Get a professional inspection. While the home may look like it is in great shape to you, an inspector will check things like the heating and air conditioning systems, plumbing, electrical, walls, roof, foundation, drainage, garage, and basement.
Consider getting a Radon and Mold inspection. Insurance companies limit claims to clean up mold and in some cases a serious mold problem necessitates the destruction of the home.
7. Secure proper Homeowners Insurance early on in the process. Insurance underwriters usually check into the claims history on the home and may reveal a frequent flooding situation or claims for mold in the past. Both are situations that you may not find acceptable to you and your family.
8. Review your options before selecting a mortgage. Fixed-rate mortgages are typically a good option for homeowners who plan to stay in their home for many years. The fixed rate results in a fixed mortgage payment, making it easier to budget for other expenses. Adjustable-rate mortgages (ARMs) are popular with homeowners with rising incomes, those planning to move in a short time, and those who want the short-term cash flow benefits of lower interest rates. FHA financing is the most popular mortgage vehicle presently. Low down payments of only 3.5% and higher debt to income ratios are possible thru FHA.