Buying a home is one of the largest purchases you will ever make. Whether you begin with a starter home or hold out for your forever home, it requires thought and consideration before diving into homeownership. The advantages of owning a home include; a place which can be customized, a place to call your own, and financial gains in the form of appreciation. The shortfalls include an asset which may be difficult to sell if you need to move suddenly, and time is required to build enough equity to cover the costs of selling. Purchasing a home also requires cash up front in the form of a down payment and closing costs.
Taking the following steps will create a smooth buying process and ensure you get the most value for your money.
- Is Your Credit in Order? Buying a home requires working with a lender and qualifying for a loan. The best rates and terms, go to those with stable credit and income. Your credit does not need to be perfect to qualify and even those with late payments, defaults and foreclosures can get approved once you reestablish credit. Begin with a review of what’s in your credit file at annualcreditreport.com. This free service gives you one report from each bureau every 12 months. Get a copy of all three reports, because they may contain different information, and lenders review the information found on all three reports. Dispute any errors before applying.
Next, take a look at your credit score. Because 90% of lenders use the FICO, that’s the one you want to get. FICO offers different versions of its score so it may not be the exact score your lender will use, but you will have a ballpark of where your score lies. Qualifying for an FHA loan only requires a 580 score to qualify for the 3.5% down payment, but many banks require a higher 640 or 660 score. Lower scores will require a higher down payment to qualify.
- Meet with a Lender before you begin your search for the perfect home. Home buyers typically must prove income and assets, and verify employment. Applications often require two years’ of tax returns to confirm job and income stability. Most buyers start with the home search, and this can be a futile effort if you are not able to get a loan approval, which involves more than just having a high enough credit score. A lender can provide an objective look at your personal situation and create a strategy to overcome potential roadblocks. Letters of explanation regarding events that have led to credit issues may be enough to push the loan into approval status. While negative marks stay on your credit file for seven years, a few years with on-time payments show things have turned around.
- Work With an Agent. Sellers pay real estate professionals on both sides of the transaction, so there is no benefit in not using your own When you choose to forgo representation, the seller’s agent gets paid to represent both the buyer and seller as a dual agent. You are always better off to have someone working for you and with you when it comes time to negotiate the price and handle all the aspects of a closing.
- Watch Total Costs, not just the monthly payment. Overbuying a home can lead to being house poor. Losing the bulk of your discretionary income towards the house payment can put you at financial risk. Lenders only consider debt payments listed on your credit report. They do not know if your vehicle is on its last leg, the monthly costs of your daughter’s dance classes, or how much you put towards retirement. Run your own Get comfortable with the upcoming mortgage payment, taxes, and insurance costs, along with ongoing maintenance costs.
- Consider Your Priorities and Your Lifestyle. Do you want to be in the middle of the action, or do you want privacy? Do you want a big yard or no yard? In most cities, larger yards are found in older homes which may require more maintenance. Newer homes may have a larger square footage, but built on zero lot lines with very close neighbors. Commuting from the suburbs may get old, but allow you to get more square footage for the money. Get on the ground and walk the neighborhood you are considering. Drive the commute for a week and get a feel for how it will feel to live there and know the overall costs before making a final decision.
- Review Long Term Needs over the next 5 to 7 years. A new bundle of joy or children leaving home will have different space requirements. Other considerations include features such as a guest bedroom, garage, or outdoor storage shed. Are there hobbies you plan to start or lifestyle changes you anticipate that may be different than today's Older couples look for a first-floor master while a craftsman may want a shed with electric and plumbing.
- Don’t Save Money By Skipping Inspections may turn up significant issues that could impact the value of the home. No home is perfect. The question is not is there anything wrong, but, what is wrong and can you live with it? Even homes a few years old will need repairs and upgrades as you personalize the space. Inspections help you see what you are buying before you sign the final papers. Lenders generally require a general inspection and a termite inspection. Others you may be interested in will depend on the age and condition of the home. Lead, asbestos, and mold are potential issues with very high repair costs.
- Homeowner Tax Breaks are available to homeowners who itemize. The tax incentives are not the primary consideration, however, the ability to deduct interest and some closing costs like “points”, can reduce the effective interest rate on already low home loan rates.
- Home Title is Important for Long-Term Needs. The most common titling is through either right of survivorship or tenants in common. Titles distinguish how the property will be divided. Right of survivorship gives both owners 100% ownership and are more common among married couples. If one spouse dies, the other inherits the whole property. Tenants in common are beneficial for partnerships, businesses, or other family members who invest together. The ownership division is based on a percentage of ownership. If two people buy a home with 50/50 ownership, as Tenants in Common, if one party dies their half of the property goes to the estate, not the partner. When second marriages with children, singles, and other relationships are involved the home title should represent the property division that best meets your needs.
- Homes Are a Work in Progress and can be valuable assets for long-term financial needs. Homes require ongoing work and maintenance and will be adjusted based on where your life is going. Carrying too big of a mortgage can create a debt burden instead of a wonderful experience you will cherish for years to come.
If you are burdened with high amounts of credit card debt and are struggling to make your payments, or you’re just not seeing your balances go down, call Timberline Financial today for a FREE financial analysis. Our team of highly skilled professionals will evaluate your current situation to see if you may qualify for one of our debt relief programs. You don’t have to struggle with high interest credit card debt any longer. Call (855) 250-8329 or get in touch with us by sending a message through our website here contact-us