Useful tips and considerations a buyer should and needs to make before buying a home, property or real estate.
What Not to Do Before Purchasing Your New Home?
No Major Purchases Major purchase, like a car, can affect your credit rating and make you less attractive to lenders. New purchases like a car, or something that requires you to open a new line of credit, should wait until after your home purchase is complete.
Keep Your Money in One Place Lenders need to feel assured that they are making a safe investment in you. They will look closely at the source for your down payment and closing costs. You will be asked to provide statements from checking, savings and money market accounts, as well as any cd’s, stocks, mutual funds, or 401K’s you have. Moving money between these accounts will make that paper trail longer and harder to follow.
Changing Jobs This will usually make no difference regarding your approval, especially if you will be making more money.
Why you Should Buy a Home?
Investment Homes appreciate at a rate of four to five percent each year on average. That number fluctuates based on many factors, including neighborhood, the home itself and dozens of other factors.
Look At The Numbers Lets use an example of a $200,000 house, with twenty percent down – that’s an initial investment of $40,000. At an appreciation rate of 5% annually, a $200,000 home would increase in value $10,000 during the first year. That means you earned $10,000 with an investment of $40,000. Your first year’s ROI (return on investment) is an amazing 25%. Of course, you are making mortgage payments and paying property taxes, along with a couple of other costs. However, since the interest on your mortgage and your property taxes are both tax deductible, the government is essentially subsidizing your home purchase. Your rate of return when buying a home is higher than most any other investment you could make
Tax Breaks All of the interest and property taxes you pay on your home is tax deductible. Owning a home is a great way to significantly lighten you annual tax burden.
Stable Monthly Housing Costs When you rent a place to live, you can certainly expect your rent to increase each year – or even more often. If you get a fixed rate mortgage when you buy a home, you have the same monthly payment amount for thirty years. Even if you get an adjustable rate mortgage, your payment will stay within a certain range for the entire life of the mortgage – and interest rates aren’t as volatile now as they were in decades past.
Forced Savings Saving money is a challenge for many people. Owning your home is like having a forced savings account. Think of the money you pay each month to the principle like depositing money in the bank and the home’s appreciation as your annual interest. From time to time you can make improvements to the home to accelerate that appreciation, saving you even more money in the long run.
Freedom From The LandLord Renters are forced to live by the terms of their lease agreements, you usually need a landlord’s permission to paint, hang shelves, or maybe even to improve the landscaping. Come to think of it, why would you want to spend money to improve somebody else’s home anyway? Sure, you get to enjoy it, but for how long. Odds are, when you leave, you will have to change everything back the way it was when you first moved in. When you own a home, you can do whatever you want. Painting, new carpets, window treatments, knock down a wall, add a new room… it’s up to you. Not only will you get to enjoy the changes, but odds are they will only increase your home’s value in the long run.
Increase in Space Think of all the extra room you will have now that you are leaving that cramped apartment. Purchasing a home guarantees an increase in living space, storage space and outdoor space.
When to Buy?
When to Buy Fluctuations in the economy can greatly affect your decision to buy a home. When things are generally good, people feel more confident and tend to make more big purchases. When things are down, they hold on to their money and make fewer investments.
Supply and Demand The law of supply and demand dictates that when the supply of homes is greater than the number of buyers, appreciation slows and prices usually fall. This is a great time to buy. The economy will always rebound and, when it does, prices will begin to escalate. If you have the means, this is the time to take advantage.
Why You Should Not Wait Attempting to “time the market” usually works best for first-time buyers. Homeowners commonly need to sell their current home in order to purchase a new one. If a “move-up”buyer wants to buy a home during a depressed market, that means they usually have to sell one during the slow market, too. If a seller wants to sell his home to take advantage of a “hot” market when prices are fairly high, they generally have to buy their next home during that same hot market. Things tend to equal out. Finally, the business cycle can change over time. Since 1983, we have had two fairly long expansions with only a slight recession in between each. You would not want to wait nine years to buy a home, would you? You could miss out on a substantial amount of appreciation by waiting, and end up paying much higher prices.
Buyer’s Remorse If you are thinking about buying your first home, take out a sheet of paper and draw a line down the middle. On one side, list all of the advantages of owning a home. On the other side, list all of the negatives, or disadvantages. When you find the “perfect” house, the one you want to spend the rest of, or at least a good part of your life in, odds are you may experience what is commonly referred to as “Buyers Remorse.” Can you afford it? Is it the right time? Should you have waited? What if you lose your job? What if this happens? What if that happens? Anxiety and stress set in. This is a normal response to buying a home. You have just made the single biggest purchase you have ever made in your life and it can be downright scary.
Remember your list? Back when you were thinking clearly, you were fairly rational about home ownership. You catalogued the good and the bad, weighed them against each other, and decided that buying a home was the smart thing to do. Reviewing the list will help resolve your buyer’s remorse.If you failed to create this list beforehand, and most people do, there is help. Do it now! Odds are you already went over every conceivable positive and negative in your head a hundred times before deciding to buy a house. You just need some reminding.
Resale Value Of all the things you must consider before buying a new home, none is more important than its potential resale value. After all, you will probably be using the proceeds from this house to buy the next one. While no one can guarantee that your home will grow in value, there are steps you can take that maximize your potential gain.
Local Community Before you can actually pick out a house, you need to choose what cities or communities you would like to live in. There are a number of factors you should pay attention to, not just for yourself and your family, but because you plan to sell the home some day. Carefully choosing your community is the first step and will help maximize the future resale value of the house.
Economic Stability When you are choosing which community to live in, it makes the best sense to pick an area with a stable or growing economy. If the area is in decline, it means property values are also in decline and your investment won’t be worth what it should be in coming years. In addition to the residential neighborhood, you should also look at the number of business or commercial districts in the area. Proximity to a thriving business community means more jobs. It can also mean that the local government has an investment in the area and is motivated to maintain it.
Local Goverment Services Try to be fully aware of the services provided by local government. Is the library well stocked with new books? Are there any community sponsored programs or activities? You should also look into local crime statistics and see how the city compares to other communities around the state and country. Is the police force effective and responsive? Are fire stations located close enough to respond quickly in an emergency? Another area to pay close attention to is community services. Does the city sponsor youth sports and are the athletic facilities and parks well maintained? Are there activities available for children, teenagers and senior citizens?
Schools Even if you do not have school-age children and do not intend to have children, you must pay attention to the local school system. Many of your future buyers will have or plan to have children and this will be their biggest concern. Find out if the schools are overcrowded. Visit the schools and see if there are portable classrooms outside them. Are there enough schools to support the population? If not, does the city have plans to build new schools? How will building new schools affect local property taxes? . You should also check to see how local students score on the standardized tests. The quality of schools is the most important factor to consider.
Property Taxes More often than not, higher property taxes mean that a community is better maintained and more “modernized” than average. For this reason, many people actively seek to buy in areas with higher property taxes.
The Local Neighborhood “Local neighborhood” refers to an area expanding from your residential area to your local conveniences, like grocery stores, the pharmacy, the video store, etc. You want to be sure all essential shops and services are located nearby. There should also be fairly convenient access to local highways, major traffic routes, and mass transit. There is one thing you should be wary of, though. If your local shopping center appears to be in decline, it could be an indicator that the local neighborhood is in decline as well. Check to see if a lot of stores in nearby shopping centers are vacant or available for lease. Also try to notice if the buildings themselves are old and run-down. If they are, you might want to consider purchasing in another area.
The Residential Neighborhood Your future home should be located as close to the center of the neighborhood as possible. You want to avoid houses located on the corner of a busy street. You also should avoid streets that are used as short cuts between larger streets. Try to buy near the middle of the block or on a cul de sac.
The Three Most Important Things You’ve heard the expression countless times. What are the three most important things to consider when purchasing real estate? Location, location, location. But, when you think about it, it makes perfect sense. The idea is to buy a house that will appeal to the largest number of potential future homebuyers. A careful choice of location can minimize potential negative influences on future resale value, and maximize positive influences. Focusing on resale value requires you to make several different “location” choices. The first choice you have to make is “which community?” At the very least, you should narrow your choice down to just a few local communities.
What Affects Your Offer Price
Propery Condition How does the property rate as compared to the rest of the neighborhood? Below average, average, or above average? Structural condition is most important factor to take into account here- items such as walls, ceilings, floors, doors and windows. Paint, carpeting and floors are important, but can all be repaired relatively inexpensively. Pay special attention to bathrooms and bedrooms and whether the plumbing and electricity work efficiently. Look at the fixtures, such as light switches, doorknobs, and drawer handles. The front and back yards should also be in reasonably good shape.
Home Improvements Note whether the current owners have made any substantial improvements. Cosmetic changes should not be given much consideration as they rarely add value to the home equal to their costs. Items like a pool, jacuzzi or expensive floor tiles would fall into this category. Major improvements are what we are looking for. Most notably the addition of new rooms, especially bedrooms and bathroomsa.
Market Conditions A hot market is a “seller’s market.” During this time, homes can sell fast and at prices above the asking price. This is not the time to try to save money. Negotiating for too long could easily cost you the home you want. A slow market is a “buyer’s market. During this time, homes can go without being sold for extended periods, with few offers being made to the seller. This is the time to negotiate for a lower price. Even if your offer is too low, the seller is likely to make some sort of counter-offer and you can begin negotiations. Transition markets are more difficult to define. If the economy slows unexpectedly, as it did in the early nineties, people who buy on the high end of a seller’s market (like the late eighties) could find their home loses value for several years. So far, no one has proven reliable in predicting when markets change or how good or bad the real estate market will become.
Deciding What to Offer Try to find sales information about comparable homes in the offer. This will give you an idea of what you should be paying for the property. Take into account the factors from above as well. This will help you determine what a fair price range would be.
Seller Motivation It is rare that a seller’s motivation will dramatically affect the price of a home, but it is occasionally possible to save a few thousand dollars. The most common “motivated seller” is someone who has already bought his or her next home or is relocating. They will be under pressure to sell the home in a hurry or be faced with the prospect of making two mortgage payments.
The Offer and What Follows
The Offer and What Follows Once you find the home you want to buy, the next step is to write an offer. Your offer is the first step toward negotiating a sales contract with the seller. The goal of the negotiations is to get what you want, and magining the seller’s reactions will help you attain that goal.
What is Involved? The offer is much more complicated than simply coming up with a price and saying, “This is what I’ll pay.” Because of the huge dollar amounts involved, both you and the seller want to build in protections and contingencies to protect your investment and limit your risk. In the offer, you include not only the price you are willing to pay, but also any other details of the purchase. This includes how you intend to finance the home, your down payment, who pays what closing costs, what inspections are performed, timetables, whether personal property is included in the purchase, terms of cancellation, any repairs you want performed, which professional services will be used, when you get physical possession of the property, and how to settle disputes should they occur. Buying a home is a major event for both parties. It will affect your finances more than any other previous purchase or investment. The seller makes plans based on your offer that affect his or her finances, too. In the time it takes to write the offer, both you and the seller are making decision that will affect the rest of your lives.
The Deposit After coming up with an offer price, you must then decide how much you would like to put down as a deposit. You want to make it large enough so the owner knows you are serious, but not so large that you put yourself in financial straits. Try to keep your deposit less than two percent of your offered price. If your deposit is larger, the lender will pay particular attention to how you came up with the funds. In this case you might have to provide a lot of paper work, which can be very time consuming. Another reason to limit your deposit is “just in case.” Although significant problems are the exception and not the rule, they do occur. “Just in case” there is a nasty or prolonged dispute between you and the seller, the less money you have tied up in a deposit, the fewer funds you have placed at risk. As with practically everything in real estate, there are exceptions to this rule, too. During a hot market there may be multiple offers on the property that interests you. A large deposit may impress a seller enough so they will accept your offer instead of someone else’s, even when your unknown competitor is offering the same price or slightly higher. Since large deposits do impress sellers, you may also find that by making a large deposit you can convince the seller to accept a lower offer. More money up front may save you money later.
Transfer of Possession The transaction is considered “closed” once the deeds have been recorded. Now you own the home. However, it is not always possible for you to take possession immediately. The most common reason for this is that is that the seller may be purchasing a home, too. Usually, their purchase is scheduled to close simultaneously with your purchase of their home. It is considered customary to allow the seller up to a maximum of three days to turn over actual possession and keys to the home. When transfer of possession actually occurs should be clearly laid out in your offer to prevent confusion later.
What If? In any transaction, you want to build in plans for any possible contingency so if something should go wrong, you can cancel your contract without penalty. For example, if you are also selling a home, you should make closing your own sale a condition of your offer. If you fail to include this as a contingency, you may wind up making two mortgage payments for a while. There are other common contingencies you should include in your offer. One of the conditions of your offer should be that you successfully obtain suitable financing. Another condition should be that the property appraises for at least what you agreed to pay for it. During the escrow period you are likely to require certain inspections, and another contingency should be that it pass those inspections.
The Closing Date It is absolutely essential that you include a closing date as part of your offer. This way both you and the seller can make plans for moving, and the seller can make plans for buying his or her next home. Though most transactions actually do close on the right date, do not be so inflexible that a delay creates insurmountable problems. There are also times when closing can be delayed by weeks, through no fault of your own. Have back-up plans prepared for such a contingency.