30 Tips on Buying a Home
#1. Follow These Steps
Get prequalified – Your lender will look at your income, credit scores, revolving debts, obligations such as child support as well as the type of loan you choose. Other factors that impact how much home you can buy is the down payment; smaller down payments mean higher monthly payments. Last, the interest rate and terms (30-year, fixed or adjustable rate) will determine what you can afford in monthly payments.
Make your wish list – Decide where you want to live and how many bedrooms and baths you’ll need.
Consider lifestyle – condominiums offer shared amenities, with little responsibility. Single-family homes offer more space and privacy, but much more exterior and yard maintenance.
Hire a real estate professional – Your real estate professional should be expert in the area where you want to live and familiar with the type of home you want to buy. Your agent has house-by- house experience in your neighborhood and can offer the best advice on homes in your range.
Select your home – No home is perfect, so don’t let minor flaws influence you. Think long-term. Which home best suits the activities and needs of your household now and in the years ahead? Don’t buy more than you need or can comfortably afford.
Make an offer – Your offer depends on the current market. If a home has been on the market a long time, you can ask the seller for a price reduction, but if it’s new on the market, the seller is unlikely to accept a low offer. Ask your real estate professional for advice.
Get an inspection – A home inspection is a professional third-party opinion of the home’s condition. The inspector will point out the age of systems, and large and small repairs that are needed, so you’ll know what you’re facing as the next owner.
Get an appraisal – The bank appraisal determines market value. If the home doesn’t appraise for the purchase price, the bank will refuse to make the loan unless you renegotiate with the seller. If it appraises, the lender will move toward closing.
Go to closing – Once final negotiations are complete, the parties to the transaction meet at the escrow office. This could be a title company, real estate attorney, or whatever is customary in your area. All paperwork is signed by both parties. The lender pays the seller, minus any liens against the home such as the seller’s mortgage. Once all the disbursements have been made, you get the keys to your new home, according to your agreement. Congratulations! You’re ready to move into your new home
#2. Find an Experience Real Estate Agent
Buying a first home is a complex process. An experienced real estate broker or agent will assist you all through the search, comparable homes sold, making an offer, inspection, repair, and appraisal processes, as well as help you find the best value, neighborhood, and quality for your budget and requirements.
The seller’s real estate broker pays your broker or agent out of the loan proceeds. If you don’t use your own agent, the seller’s broker keeps the commission, so you might as well avail yourself of professional advice. Your real estate broker or agent works in your best interest.
#3. Don't Expect Perfection
There’s no perfect home. You may want all the latest amenities of a new home, but even new homes come at a price, perhaps longer commutes and bigger pricetags.
Many sellers don’t repaint or recarpet prior to selling, so if you’re shopping for an older home, expect to do some cosmetic work.
Homes that need updating are priced below homes that are up to the minute and move-in ready. That could be to your financial advantage, so try to look beyond outdated fixtures and focus instead on the floorplan and dimensions. Ignore the seller’s tastes and imagine each room clean and clear of clutter and with your own things in them.
Most cosmetic changes are relatively inexpensive, and you can even pay for them with your mortgage loan, in some cases. Talk to your lender.
#4. Think Long-Term Investment
Buying a home can be a wise financial investment, if you buy right and hold your home for long- term gain. Because of closing and moving costs, it’s nearly impossible to buy a home and sell it immediately for a large gain, but it is possible to sell after a couple of years with no capital gains tax, should you make a profit.
According to the National Association of REALTORS®, home equity growth beats inflation by about one to two percent annually, not to mention government subsidies for home ownership in the form of tax relief and other incentives.
However, if you look at owning a home strictly as an investment, you’ll miss many pleasures.
Before you begin seriously shopping for a home, there is some groundwork that you need to do, if you’ll pardon the pun. A little preparation before you buy can put you in a great negotiating position.
#5. Start Now
Hire a real estate professional. Communicate your wants and needs and let him or her start looking for the right home to meet your needs. Yes, you can look at homes on sites such as Realtor.ca, but your real estate professional has access to homes as soon as they come on the market. He or She can also network with other professionals to be on the lookout for you. He or She might hear about the perfect home before it hits the market, giving you – his or her client – the advantage.
#6. Check and/or Repair Your Credit
If you haven’t already been approved by a lender, you need to make certain your credit is in order. The Fair Credit Reporting Act requires that the three nationwide consumer credit report companies (Equifax, Experian, and TransUnion) must provide you with a free copy of your credit report and FICO scores once a year, upon request.
You can order the reports by visiting annualcreditreport.com or call 1-877-322-8228. This organization is authorized to give free credit reports and scores, with no contingencies. If you find a ding or an error on your credit report, take care of it immediately. Dispute an inaccurate item on the report by contacting the consumer reporting company and the information provider in writing.
#7. Don't Inadvertently Raise Your Credit Scores
Lenders look at more than how much credit you use. They also take into consideration how much credit you have available (debt-to-income ratio). Now is not the time to be opening any new accounts or closing any accounts. Don’t purchase furniture or a new car or any big ticket item before buying a home.
#8. Get Loan Pre-Approval
Don’t start house hunting without knowing how much home you can buy. In order to determine how much you can buy, you must apply for a loan. In doing so, you will have to share information concerning income, work history, debts and other personal information with the lender. A preapproval letter will open doors with sellers because it demonstrates that you are serious and prepared to buy.
#9. The Importance of Communication
If the goal of communication is to understand and to be understood, then sharing information can only help your real estate professional do the best job possible for you.
Your real estate professional should listen to your dreams, goals, and hurdles that must be overcome. By the same token, you should be ready to hear and act upon the expertise and information they bring to you. With this knowledge, your real estate professional has a better grasp of who you are and what you want to achieve. Without it, they may be working at cross purposes to your needs.
The key word is sharing. Share information about yourself and ask your real estate agent to share information as well. Consider how they received their training, their specialties, and how knowledgeable they are about the marketplace where you are buying or selling your home.
Goals: Consider your long term goals. What is your objective in buying or selling your home, is it an investment or a long-term occupancy? Where are you planning to move? How soon?
Interests: Take into account personal interests and its locations. Do you want to be near work, near a a specific school, or near certain amenities? What are the interests of the other members of your household? Which are the priorities when it comes time to select a home?
Challenges: Given the current lending environment, even those with good credit face challenges when buying or selling a home. Do you have a home to sell before you purchase? Have you checked your credit scores? Do you have a down payment? Have you been prequalified by a lender?
Lifestyle and Preferences: The type of home you purchase can make a difference to your personal comfort. Is there a type of architecture you prefer? How many bedrooms and baths do you think you’ll need? Do you prefer one or two story homes? Or three? Do you prefer a walkable community?
There are pros and cons to every choice you make. Exploring both sides of any question or consideration can help you to truly understand that you’re buying more than a condo or a single- family home – you’re buying an environment for the next few years at least. Good communication can help you meet your goals and avoid disappointment. Your real estate professional wants you to be as happy and satisfied with your choices as possible. Ask your real estate professional as many questions as you want. Ample communication will increase your likelihood of making the best choice possible for your household.
#10. Setting Your Home Buying Goals
With the dramatic rise and fall of housing prices over the last decade, consumers have new respect for homes as investments. But the flip side, is that your investment is still a home, one you’re likely to occupy for several years or more.
According to the annual Profile of Home Buyers and Sellers, compiled by the National Association of REALTORS®, the primary reason buyers cite for purchasing a home is simply the desire to own, followed closely by the desire for more space, and a change in the family situation.
For most people, buying a home is more about giving household members more comfortable living arrangements and putting them closer to jobs, favorite activities, other family and friends. What are your goals for buying a home? You might want a better home and neighborhood. You might want a different kind of living experience, such as moving from an apartment to a single-family home with a private garage and yard. Your family may be growing, so you have to think about school districts and proximity to parks and other recreation.
If you’re not certain, you might think about what would change about your situation if you became a homeowner. You’ll definitely be more established. If you’re like most homebuyers, you expect to stay in your new home about 10 years.
You’ll also build equity for yourself, instead of for someone else. Every payment you make, plus the rules of inflation will eventually allow you to recoup most if not all of your investment, or make a profit when you sell. Affordability may also be an important factor for you. The combination of low interest rates and low prices allows you to buy more home for the money. Rents are rising, making ownership more affordable than renting in many areas, especially when you factor in tax incentives such as mortgage interest deductions and property taxes allowable as deductions against your income.
When you buy, make your goals long-term. Choose the home you think will serve your household’s needs the best for the longest period of time, as it’s been proven that the longer you own a home, the more equity you’ll build. Today’s market conditions and affordability, make it more likely that you will reach your homebuying goals, no matter what they are.
#11. Should You Wait to Buy a Home?
What makes people want to buy a home? Space, privacy, proximity to family and friends, and a sense of community all contribute to the emotions of buying a home. Tax breaks, transportation, amenities, and the opportunity to build equity are also factors.
But the biggest reason cited by home buyers year after year is simply the desire to own. According to the National Association of REALTORS®, 75% of first-time buyers are former renters. They prefer to build equity for themselves than for someone else. There’s always a risk that home prices will fall further, but prices and mortgage interest rates have bounced along the bottom long enough that sooner or later one or both will start rising again. That means the risk is greater that prices and mortgage interest rates will rise, rather than fall.
Researchers at the Center for Economic and Policy Research studied 100 communities and found that affordability is a strong incentive to buy now. You can build equity within four years, and take the money you’ve put in the home back out again when you leave, which is not possible for renters.
So how do you know if it’s the right time to buy?
Only you know if you’re in a position to buy a home. Your lender will let you know how much home you qualify to buy. Work with your real estate professional to find neighborhoods and homes that are within your borrowing limits. Compare the rent you’re paying now with the monthly payment you’ll be making including property taxes and hazard insurance.
The time is right
Buying a home is one of the greatest lifestyle changes you can make. It goes hand in hand with forming a family and becoming a productive member of the community. If you want the amenities of home ownership, you will enjoy owning.
Incentives are huge
Mortgage money is the cheapest money you’ll ever borrow. Couple that with low prices that are sure to rise and you have the makings of a great investment. Further, you can deduct your mortgage interest rate and property taxes from your income taxes. And you can sell your home after two years and not pay capital gains on any profits. You can rent your home to others and start building a portfolio of self-sustaining properties. Don’t worry about timing the market. Even the smartest investors don’t wait for the bottom to buy – because you don’t know where the bottom is until it’s already passed you by.
#12. How to Decide Which Home to Buy
Buying a home is a long-term commitment. The home you buy should be affordable, yet offer the size, features and amenities you and your family want.
Your monthly payments should be comfortable for you to handle, in relationship to your total obligations, about 28% of gross monthly income. Your house payment and your debts should not exceed 36% of your income, including revolving credit, student loans, and child support. You should also be in the correct loan for your needs. A fixed rate is more expensive, but offers more protection than an adjustable rate mortgage that can reset to a higher amount, making your monthly payments higher.
Also, consider the monthly operating costs of the home including utilities, HOA fees, landscaping, commuting, and other costs.
Location is about convenience, and you’ll pay a premium to be closer to work centers, parks, shopping and transportation. You can buy a smaller home, or you can buy a home in need of updates to get closer to where you need to be. Think about your commutes to frequent destinations, including jobs, schools, family and friends. To get “more house,” you may have to move further away from core city centers.
Make a list of must-have features so you can narrow your home search. A front porch, a two-car garage, hardwood floors, and eat-in kitchen can all add to the enjoyment of your home. Just as important is how your home is designed. The number of bedrooms and baths should suit your household members, and the layout should suit your lifestyle. If you like to entertain, you should have plenty of dining space and storage for dishes and cookware. If you frequently work at home, you’ll need a home office or at least a quiet designated workspace. Just make sure the home you choose allows room for your family to grow.
Talk to your lender and see what you can qualify to buy, then talk with your real estate professional about the home you have in mind. With professional guidance, you should be able to find and buy the home of your dreams, where you’ll be happy for a long time to come.
#13. Know The Numbers
When you buy a home, it’s all about the numbers and the choices they afford you. Your credit scores, income to mortgage debt, income-to-debt, and down payment can all affect your mortgage interest rate, or how much it will cost you to borrow money to buy a home.
Know Your Credit Scores: Your credit score can be between 300 and 850. Compiled by credit bureaus and FICO, an analytics corporation, credit scores are a snapshot into your credit- worthiness. Lenders are in a low-risk mood and are requiring high credit scores from borrowers. To qualify for the best mortgage interest rates – the benchmark 30-year fixed rate – your credit scores must be approximately 720 or more. To find out what your credit scores are, visit annualcreditreport.com, where you can get free copies of your credit report and scores.
Know Your Income to Debt Ratios: To qualify for a 30-year fixed rate conforming loan that is insured by the Federal Housing Administration (FHA), your income to mortgage debt ratio can be no higher than 29% of your gross annual income. For example, if you make $5000 gross income per month, your house payment (principal, interest, hazard insurance and property taxes) should be no larger than $1,450.00. If you’re carrying credit card debt, student loans, or pay child support, the monthly debt service must be accounted for. To get the income to total debt ratio, multiply your monthly income by 41%. For example, if you gross $5000 per month, your total debt (including your house payment) can be no larger than $2050. That means to qualify for a $1450.00 house payment, your debt service can be no higher than $600 per month.
Know Your Down Payment: For most loans, your credit scores affects down payment requirements. If you have a high credit score, you can get an FHA-guaranteed loan with only 3.5% down, but if your scores are low, you may be required to put as much as 10% down. Conventional loans are sold by banks as securities to Fannie Mae and Freddie Mac, and require a 20% down. You can obtain FHA or conventional loans with less money down, but expect to pay a mortgage insurance premium, which reduces the risk for the lender.
Where your down payment originates also makes a difference to lenders. If you have saved the money yourself, or it comes from a recent real estate transaction, lenders tend to be more relaxed than if your parents are giving you the money as a gift. Your credit scores, income to debt ratio, and down payments dovetail together in a way that makes sense to your lender. By determining these numbers, you can comfortably afford the home you want to buy.
#14. How Much Home Should You Buy?
Conventional wisdom says you should buy as much home as you can possibly afford and own it long enough to build equity over time. But that only works if you choose the right home.
To choose wisely, you have to see as far into the future as possible. The trick with buying a home is getting as much as you can on your wish list without becoming house poor. House poor means you can afford your house payments but you can’t afford to do much of anything else. This is why lenders have a conforming loan standard that they as benchmark for pre-qualifying you as a borrower. This is true whether you’re a first-time home buyer or a millionaire move-up buyer.
Typically, you want your house payment to be within 30 percent of your gross annual income. While you may be able to get a bigger loan with a smaller income, the 30 percent rule should keep your payments affordable enough that you can afford to buy furniture, pay off student loans, or whatever you may need extra money to do. Qualifying to buy a home is only the first step. You also want to be able to handle surprise expenses that come your way; this includes repairs, a spike in the cost of utilities, remodeling or ongoing maintenance costs.
Talk To Your Lender
The amount you qualify for directly effects the compromises you make in consideration for purchase of a home. If you factor in other considerations, you may find that living with a little less house is safer for you financially. You can always look for a smaller home in a better neighborhood, or if size is important, look for a larger home adjacent to your dream neighborhood. Can you possibly borrow more money and have it all with no compromises? Yes, it’s possible, depending on your credit scores and your other debt obligations. You can always get an adjustable rate loan, but in a low-interest environment like we have now, your annual adjustments will certainly be higher.
Talk to your lender and see what you can qualify for before you go shopping for a home. Lock in your rate, so you can calculate your payments and obligations accurately. Be sure to add in what you’ll pay in property taxes by calculating the tax rate against your purchase price. Knowing what you have available to spend will help you determine how much house to buy.
How long will you likely live in the home and how large will your household be?
How many bedrooms and baths do you think you’ll need?
How much space do you require for hobbies or a home office?
Where do you want to live – near work, in a certain school district?
How important are amenities such as spa tubs and granite countertops?
#15. Things to Know About Your Credit Report
Consumer credit information is obtained and stored by three credit bureaus.
Each bureau produces a separate credit report, based on your acquisition and payment history with credit cards, student loans, home loans, car loans and any other credit. They also record bankruptcies, civil judgments against you, and liens against your property.
Each report produces a score, called a FICO score. This is a summary or snapshot of your credit that is used by lenders to quickly determine if you are a good candidate for a loan and what interest rate you will pay based on your creditworthiness.
Unfortunately for consumers, credit reports are often full of errors. They may inadvertently post a negative mark by transposing your social security number, or they may fail to remove negative items that have been paid or resolved. All negative marks will lower your credit scores.
It’s your responsibility to look at your reports and make sure they are accurate. You can visit annualcreditreport.com once a year to get copies of all three credit reports.
If you find an error that needs to be repaired, take action immediately. It can take weeks for an error to be removed from your report, so start immediately. If you show your lender proof that the negative mark is incorrect, they will likely proceed with the loan but insist that the credit bureau post the correction before closing.
The best way to protect your credit is to use it and pay off your debts quickly. Keep accounts that you’ve had a long time open, and use them occasionally. Again, quickly pay them off.
Tips For Keeping Your Credit Scores Higher
- Don’t close credit card accounts. Keeping lines of credit open is beneficial to your income-to- debt ratio and will help you keep your FICO scores higher.
- Don’t max out or consolidate credit cards. Credit card companies like it if you only use about 30% of your available credit on your card. You’re better off having small balances on multiple cards than a large balance on one card.
- Don’t apply for new revolving credit, consolidate or transfer balances. It’s tempting to buy new furniture for your home, but don’t open that account until after your loan closes. You don’t want “inquiries” to be raised in the scoring algorithm.
- Don’t change jobs right before you apply for a home loan. If you have to change jobs, changes within the same field are considered more favorably in scoring.
- Do pay all bills on time and with at least the minimum payment due. Lenders like on time payment histories.
- Do pay down your debt. Lower income-to-debt ratios are attractive to lenders. Start by reducing credit card balances first, beginning with the balances with the highest interest rates. Revolving credit is considered riskier debt than installment loans such as student loans or car payments.
- Do shop lenders simultaneously. Credit score software takes into account several inquiries from mortgage lenders as normal, but if you space rate-shopping out over weeks or months, it could impact your credit score.
Remember, mortgage lenders are most interested in your ability to repay the loan. The most important factors are job and debt payment history. Job security (long-term employment in the same field) and on-time credit payments are the best ways to build and protect your credit.
#16. How to Get a Buying Advantage
One of the first things you should do when you decide to buy a home is get preapproved by a lender.
A preapproval simply means that you’re financially prepared. You’ve already shared your financial information with a lender by providing your work history, bank statements, and student loan and credit card statements.
The lender has checked your credit scores, income-to-debt ratios, down payment source, work history, income streams,and has made a preliminary decision to loan you X amount at Y percentage rate. The lender will provide you with a letter of preapproval, so you will know exactly what your interest rate will be and how much you can spend.
There are many advantages to getting preapproved by a lender. Interest rates cannot be secured without applying for a loan, so getting preapproved means that you have an advantage by getting your interest rate locked in.
Now you can shop for a home with confidence, knowing you are buying within your affordability range. You’ll also find that being preapproval gets respect from sellers. They know you are serious and have begun the loan process. While you don’t have to present your preapproval letter to the seller, you can allow your agent to share the name of your lender to confirm that you have been preapproved.
Keep in mind that a preapproval is not a guarantee that your loan will close. Before closing, your lender will check your credit a second time, to make sure you haven’t added more debt or allowed a current debt to go unpaid. If the lender finds a blemish, you must take immediate action to fix the problem. Once you write a purchase contract for a home and your offer is accepted, notify your lender immediately, so the approval process can continue.
#17. How Long Do You Plan to Stay?
Home transactions are expensive, totaling as much as 14 percent of the purchase price, by the time you buy and sell your home.
That means the period you live there has a lot to do with how you can sell or lease your home at break-even or a profit, and buy another home. Adjustable rate loans are ideal for short occupancy, because they are often a point or two lower than fixed-rate loans, but make sure the reset period is far enough away that you can sell the home before your payments get larger. If you’re planning to occupy the home for years to come, or turn it into a rental after a few years, a fixed-rate loan is much better. It costs more but your payments will always stay the same (hazard insurance and property taxes can change.)
It may take living in the home two to four years or longer for you to break even at selling time. Your lender can help you run the numbers. What if you have to move before you can sell at break-even or a profit?
Strategies for a short stay
If this is your first home, you have three options once you own it – live in it, lease it as an investment, or sell it. The terms of your loan may dictate what you can do and how soon you can do it.
Mortgage interest rates, property taxes and capital gains taxes are more favorable to owner- occupants than non-occupying owners or investors:
To qualify for a homestead interest rate, you must occupy the home you’re going to buy. Otherwise, non-occupying buyers are required to put 25% down and pay a higher interest rate as investors.
FHA loans require you to occupy your home for one year after closing. After that, you can rent it or sell it with no restrictions. The low FHA rates are intended for homesteaders, not as a subsidy for home flippers or investors, which is the reason for the restriction.
If you have to move for any reason, you can rent your home or sell it at any time, but tax consequences may apply.
Strategies for a long stay
Many investors acquire rental properties by occupying them first. They get a better loan rate, property tax rate, and they can sell them within five years without paying capital gains. You can buy as many homesteads as you wish, as long as you stay two years or more. The longer you occupy your home, the more equity you will build. You’ll pay down your mortgage, and over time, your home’s value should rise. Keep your home in top condition and it will hold its value longer.
#18. All About HOAs
More and more often, homebuyers are choosing homes in association-governed communities in order to have access to a greater number of amenities than they care to upkeep on their own.
Home Owners Associations
A homeowners association (HOA) is a legal entity of homeowners that manages the financial and property assets of the community. Its primary goal is to protect and grow home values. HOA- managed homes sell for higher prices than similar nearby homes, according to the Community Associations Institute.
About 20 percent of the nation lives in a community governed by some kind of homeowners association (HOA), condominium association or co-op. And the trend isn’t going away – three out of five housing starts since 2000 were under homeowner management. As land becomes more precious and cities sprawl outwards, public spaces (including parks, roads and community centers) are cost-prohibitive to provide. Cities are requiring developers and builders to provide services such as roads and streetlights. Communities are taking on services such as trash removal and managing amenities such as swimming pools, playgrounds, fitness areas, and more. Cities also require developer/builders to create a community association to manage these services. Once the development reaches a certain percentage of owner-occupancy, the builder/developer transfers management of all common areas to the homeowners.
How do HOAs work?
Homeowners operate HOAs. Homeowners elect a volunteer board of directors and committee chairs. These volunteers are responsible for the management of the community; this includes overseeing everything from landscaping maintenance to event planning, and more importantly, the HOA’s budget. The board creates the annual operating budget which handles the daily and monthly bills and salaries of the community. Another budget is created for reserves – money set aside for emergencies or toward large repairs and remodeling that may not be needed for some years. The community association collects assessment fees from home buyers, with the goal that each homeowner pays a pro rata share of the expenses. The board is responsible for collecting assessments and spending the proceeds wisely. If a homeowner doesn’t pay their dues, the board has strong legal powers, including using a collection agency or filing a lien on the property. The advantage to having a community association is that much of the drudgery and maintenance associated with homeownership is done for you. As a dues-paying member, you’ll have full access to documents, budgets and monthly operating costs to be sure the board is making sound decisions on your behalf. Before you buy a home that is under HOA management, ask about fees and when they are due – monthly, quarterly or annually. You can also ask to see the budget and finances.
#19. Consider Your Commute
The suburbs were once considered the ideal way to escape the problems of the city. Gas was cheap, homes with large lawns reduced the need for city parks, shopping centers displaced trips to the city, and commuting by car to work became a way of life. Fast-forward 50 years, and things have changed. Roads are crowded and gas is expensive. As commutes get longer, commuters are finding they are missing precious time with their families as well as risking their health in sedentary traffic.
According to the U.S.Census only 5 percent of workers use public transportation, which means most of these commuters are driving their own cars. With the cost of gas at an all time high, working families are finding that the cost of commuting is making living in the suburbs less affordable. Even though suburban homes are typically far less than expensive city homes, the cost of commuting may outweigh these differentials.
Clock your commute. If you’re looking at homes in the suburbs so you can get more house for the money, consider your commute time. Go to and from the house you want to buy at the same times of day that you would if that were your home.
Map your activities. Write down other places where you need to go on a regular basis – school, worship services, ball practice, grocery shopping, and more. Drive those circuits at the same times you’d likely go to and from home. You may find that your commute to work is easy, but the commute to school is tougher.
Do the research. Add up the costs per mile and you may be surprised at how expensive your commute really is. Look at walkability scores in the neighborhood where you want to buy. Ask your real estate professional about transportation – bike routes, trains, and other ways to get around. Share your other activities with your agent so he or she can get a good idea of your goals.
Be flexible. Work with your real estate professional on ideas and solutions. She may know a neighborhood that you haven’t considered or don’t know about that could give you a reasonable commute and is comfortably close to other places you need to go, too. You may find that you’re better off moving closer to work, or closer to the school you want. It could mean a change in lifestyle from what you were considering before, such as embracing urban living over suburbia.
At the very least, considering your commute will help you decide where you want to live as well as how you want to live.
#20. Getting a Comparative Analysis Before Buying
Choosing a listing price or an offer price on a home can be challenging since no two homes are identical. Sellers traditionally use a comparable market analysis, or CMA, as a useful tool for determining their listing price. The CMA compares the seller’s home to those that have already sold nearby or are currently on the market. But, CMAs are equally useful to buyers. When you select a home you’re interested in buying, ask your agent to run a CMA for you, as if you were the seller.
Every CMA Is Unique
To make a CMA, your agent inputs search parameters from their multiple listing service database and a CMA software produces a report containing similar homes that have recently sold or are currently on the market. This type of report is a side-by-side comparison of price, size, age, neighborhood, days on the market, and other pertinent comparable information. As a buyer, looking at similar homes in your area can give you a better sense of how quickly homes are selling, what offers have been accepted by sellers, and more.
Choosing Your Offer Price
Just as a CMA helps a seller choose a listing price, a CMA can help you choose an offer price. A CMA can help you answer key questions such as:
How comparable are the other homes to the one you are interested in buying?
Are the homes you’re comparing of similar age and size?
Are the other homes in the same neighborhood?
How many bedrooms and baths do they have?
Are the homes single story or two stories?
What size are the lots on which the homes sit?
Are the homes single-family, townhomes or condominiums?
However, the CMA can’t tell you everything you need to know. CMAs will list the age of the home and the age of recent updates, but beyond that you don’t know how old fixtures or amenities are. The pool at the home you want may be in need of retiling or resurfacing, which can be quite expensive. Or the air conditioner may be close to replacement. For that reason, the CMA should be used as a guide. A CMA can’t tell you whether a home backs up to a highway, whether it’s in poor or good condition, and if it’s been updated and how well. You need to see these homes for yourself, so you can understand the differences in price, features, and location. And that’s where your agent can be invaluable. With his market knowledge, or her neighborhood expertise, your agent can give you the house-by-house information you need to make a better-informed decision.
#21. What is Seller Staging Hiding From You?
Staging a home simply means making the home as attractive as possible to buyers. It’s a broad term that includes cleaning, decluttering, depersonalizing and decorating the home.
At its best, staging helps buyers see the possibilities so they are more inclined to visualize themselves owning and living in the home.
At its worst, staging can divert buyers’ attention from real problems a home may have that may be expensive for the buyer to address.
There’s nothing wrong with a seller presenting their home at its best – sparkling clean and ready for viewing. But before you let yourself be enchanted by the romantic table set for two, or the aroma of cookies coming from the oven, or the spa robe laid out by the bathtub, ask yourself if those are the things that really should be influencing you.
Instead, concentrate on the things that will impact your daily life – how the home flows and functions and if you’ll need to make expensive repairs or updates.
When you view homes for sale that are staged, ask yourself the following questions:
Does the staging make sense? Would you really put your own furniture as close to the fireplace or as far from the window? An attractive but odd arrangement is a tipoff that the room is either not well designed or that a problem is being minimized. For example, a heavy chair may be used to discourage buyers from lifting the area rug.
Is the staging hiding a repair that needs to be made? Bathrooms and kitchens are the most expensive rooms to repair and update. Move the bottle of bubble bath and look behind the shower curtain. Is the caulk fresh? Is the porcelain tub or sink stained? Is the finish worn off of the fixtures? Look under the sink for water stains.
Is the staging overdone? Candles burning in every room or tons of air freshener may be masking pet odors. Heavy drapes may cover windows that are too small or with ugly views.
If you like the home well enough for another viewing and to make an offer, ask the seller to leave off the air freshener and to move that heavy chair aside. Take measurements and make sure your things will fit. Get the home inspected, so you know what you’re really buying.
#22. Look Beyond Staging
Professionally staged homes are designed to impact your emotions and your senses. If done well, they tell a story of how you will work, play and entertain in this home – You’ll begin to imagine how well you could live if you owned this home. Staging can seduce you and make you want to put your money down and sign on the dotted line.
Fresh-baked cookies or freshly-brewed coffee are inviting aromas that make you want to linger.
The just-delivered look of spotless new furnishings and accessories can show you how to accent this home to perfection. Soft music invites you to relax, take your time, and make yourself at home. Clean uncluttered countertops, beds made with fluffy pillows, and dining rooms replete with elegant place settings show you life at its best – serene and organized. Of course you want to live this way. But before you fall in love, remind yourself that most of the things you’re responding to are not included in the purchase price of the home. You’re buying the structure, not the décor.
Staging presents the interior and exterior of a home in a way that depersonalizes it from the seller. It doesn’t mean the seller lived with the dining table set for a party every day. The idea is to say, “Welcome to your new home”, not “Buy my home”. That can include rearranging furniture, moving accessories to a new location or starting over with a whole new look – fresh paint and updated “borrowed” furnishings.
Your goal is to buy the best home you can possibly afford that meets your needs. Look carefully at things that are fixed – systems, fixtures, and floorplans. Think about how you want to live. No home is perfect but does this home answer most of your needs? Ask yourself the following:
Does it flow well and could you get groceries to the kitchen quickly and easily?
Can more than one person cook or assist with meal preparation?
Do household members have a nice balance of privacy and places to gather?
Do you have enough storage and are the rooms large enough for their purpose?
Is there a place for your home office, art studio, or woodshop?
Does the house need updating to better meet your needs?
Which systems need replacing or will need replacing soon, such as the roof, AC or a large
appliance? Would they be reasonable or affordable, given the purchase price?
It’s nice to see any home finished to look its best. You can get great ideas as you walk through a staged home. Just remember to give the systems, appliances, floorplan and condition the attention they deserve.
#23. Home Features That Matter Most
When choosing to buy a home, you’re buying more than just a house. You’re buying:
Location – access to the neighborhood’s amenities.
Condition – the building quality, style, repair of your home.
Affordability – owning a home that functions for the size and needs of your household more affordably than you can rent.
A Back-to-Basics Economy
In 2012, bigger wasn’t better, and over-the-top home features were undervalued in the new back- to-basics economy. Today’s homebuyer is “very focused on affordability”, says John Burns Real Estate Consulting. Consumers prefer smaller homes and are less willing to pay for extravagant features such as outdoor kitchens and media rooms.
High-end home sales over $500K have dropped by more than half since 2007, from 13% to 6% of all new home sales, while homes under $200K rose from 33% to 42% of all transactions. Homes under $300K account for 75% of all new homes built today. Homebuyer preferences are growing for single-story homes with greater accessibility for older people and flexible floor plans that allow aging parents or boomerang kids to have a second master suite.
Most Wanted Features
According to a recent study, nearly three quarters of home buyers look for homes that are energy efficient and use sustainable materials.
The most desirable home features include:
Building a custom home
Near the beach
Cottage in the woods
How Important Is Square Footage?
MLSs use it. Insurers use it. Appraisers use it. Tax Assessors use it. When it comes to real estate, there’s no avoiding square footage as a measure of a home’s value. But how much is square footage worth to you as a homebuyer? Knowing the square footage can be helpful, but it shouldn’t be the main tool to determine your offer price. Square footage measurements aren’t exact, nor are they taken the same way by every person.
For example, your local tax assessor or appraiser may determine square footage by measuring the outside of the house. A real estate professional, on the other hand, typically counts only indoor living space to determine square footage. Real estate listings for single-family homes do not include
square footage for covered “outdoor” spaces, including porches, verandas, balconies and porte- cocheres. Yet, in high-rise buildings, square footage quotes often include balconies. Further, some elements such as stairways and closet spaces are also open to interpretation. If you’re buying a home with a two-story foyer, is that foyer space also counted on the second floor?
Another subjective measure is the price per square foot, this is determined by the number of square feet divided into the price of the home. High-end homes with expensive materials such as granite countertops and finishes such as hardwood floors tend to have a much higher price per square foot than more affordable homes. But what if those high-end features are 20 years old, and you’re comparing them to other similar homes in the area that are brand new? Hallways, landings and stairs can add hundreds of square feet to any home, but is that space really livable? An open floor plan may have smaller square footage, but be much more pleasant to live than a larger home with too much space allocated to getting from one room to another.
All this means that valuations based on square footage are and should be somewhat subjective. If you’re confused about what you are paying per square foot for your next home, ask your real estate professional for interpretation.
#24. Get a Home Inspection
A home inspection is designed to give buyers a better understanding of the systems and overall condition of the home they’re buying. Otherwise, you’d have to rely on your own knowledge and experience.
When you hire a home inspector, there are a few things you need to know.
No house is perfect.
A home inspection should point out questionable conditions and/or potential safety-related concerns in the home you want to buy. A home inspection should cover:
Exterior, porch and deck (contiguous)
Foundation and walls
Chimneys and roofs
Windows, doors and attics
Electrical components and plumbing
Central heating and air conditioning
Basement/crawlspaces and garage
You should attend the inspection.
Walk through the home with the inspector so he or she can point out conditions to you that will go into the written report you will receive. Make your own notes so you can discuss the findings with your real estate agent.
A structural home inspection isn’t enough.
A structural inspection is what most buyers typically order, which may note such things as previous termite damage, but that’s no guarantee there’s not a new infestation. Depending on your lender’s requirements and your own need to know, you may order several types of inspections – structural, termite, and environmental.
Home inspectors may have differing qualififications.
Make sure your home inspector is an expert, with a background in plumbing, HVAC, electrical work or general contracting, or is a member of a professional organization such as the National Association of Home Inspectors, Inc. (NAHI). Ask your inspector for credentials and certifications.
Once the inspector gives you the written report, you have the information you and your lender need to make informed decisions about what needs repair, and whether you or the seller is responsible.
#25. What to Know About Inspections
One of the few expenses the buyer pays upfront when purchasing a home is the home inspection. This is an examination of the home’s structure, systems, and built-in features. The home inspection provides the best opportunity for you to find out the true condition of the property.
Don’t Skimp On The Inspection
Home inspection requirements are determined by state law. They can be extensive, and don’t always cover the features you want investigated. For that reason, you may need to hire separate companies for a termite/pest inspection, a structural inspection, and a general inspection. A termite inspection typically covers only the main building on the property. If the home you buy has a detached garage, for example, the inspection might not cover it, unless you pay extra. This is important, because if the garage reveals termites down the line, you have no recourse with the seller or the inspection company.
To examine the foundation, roof, and exterior condition of your next home, you need to hire a structural engineer to perform an inspection. The structural engineer will tell you if the foundation, roof, brick or siding need work or replacing. Oftentimes, a general inspection company can also provide a structural report for an additional fee. A general inspection covers the operating systems and fixtures inside and outside the home – plumbing, electrical, sprinklers, swimming pool filters, and so on. The inspector uses the latest state-mandated codes to look at the age and condition of these features for signs of leaks and inefficiencies. You can expect them to turn on every burner of your stove and every tap in the kitchen and baths.
What to Expect
Sometimes inspections can reveal expensive problems to fix. The inspector will tell you his or her opinion of the expected life of the roof or the air conditioning unit, which will help you plan your budget. You may require the seller to fix these items before you close, or you may ask for a reduction in the price of the home to allow you to fix the items yourself. While inspections are supposed to be detailed, they don’t necessarily mean that the seller must fix everything, but you can require that they fix leaky faucets, broken handrails, and other items that may affect the terms of your loan. If you have an FHA or VA federally-insured loan, your inspector will know those standards and point out any condition that doesn’t meet them. This could delay your loan until the seller fixes those items and shows proof they’ve been completed. A home inspection can be several hundred dollars depending on how comprehensive it is, but don’t let the cost deter you. Most lenders will not loan you the money to buy a home without an inspection. Take the time to make sure that the inspection meets your lender’s requirements.
#26. Making an Offer
Before you submit an offer, have your agent pull up the most recent sold comparables (CMA) within a reasonable radius of the home, so you can compare the home fairly in terms of location, size, features, and amenities. Next, ask your agent about market conditions, so you can choose a strategy.
In a buyer’s market, discounts are common because there are fewer buyers, more properties for sale, and home prices are soft or falling. In a seller’s market, homes sell quickly for full price or higher because there are plenty of buyers and few homes for sale. Whether you are in a buyer’s market or a seller’s market, your goal is to buy the home at a fair price. If you were the seller, what is the lowest possible price you’d accept?
Low-balling the seller is risky. If the seller feels insulted by your offer, you’ve lost the opportunity to negotiate. On the other hand, some sellers are simply unrealistic about their home’s value. Maybe your offer will be their wake-up call. If the seller’s home is offered at a reasonable price, pay asking price or close to it. A home priced to sell will sell quickly.
Is there a way to sweeten your offer with a quick closing or an all-cash sale? To show the seller you’re serious, include a copy of your lender’s pre-approval letter, along with a cover letter summarizing your strengths as a buyer in terms of creditworthiness, flexibility in closing, and why you love this home. Include a copy of your comparables to show why you feel your offer is a fair price for the property. If your offer is conditional, such as your need to sell another home before closing on the seller’s, you’ll have to find a way to sweeten the deal, such as a full-price offer. Few sellers would accept a discount and a contingency at the same time.
Your real estate professional will help you draft the offer with a price, estimated closing date, and terms, including earnest money (a guarantee that you’ll perform as a buyer in good faith), final approval by your lender, and your right to have an inspection. Once your offer is negotiated and accepted, your earnest money will be sent to the escrow agent’s office. Now the inspections occur, and this is where the contract negotiations can break down. During the inspection process, the inspector will tell you about the condition of appliances, heat and cooling systems, roofs, electrical and plumbing systems, etc, and if your future home is up to current city codes. You should only renegotiate a repair when it wasn’t obvious before, or when a system is unsafe or not functioning. Once the seller has agreed, your offer is now a binding contract, and you’ll proceed to closing.
#27. Making an Offer Today
You’re ready to write an offer on the home of your dreams. Your agent has gathered all the information that you need to write a reasonable offer. They’ve pulled up comparables and created a CMA for you that shows you side-by-side comparisons of similar homes currently for sale or recently closed. You’ll be able to accurately judge size, condition, updates, and other variables to arrive at an offer price that you can afford and that the seller will accept.
Your offer should be clear on the price, terms, dates, and contingencies that you want the seller to meet.
Think Like the Seller
Now it’s time to think like the seller. Introduce yourself in a letter, so the seller knows who you are, what your goals are, and why you want this particular home. If your offer includes a contingency that may inconvenience the seller, be sure to mention why that is necessary for you. If you’re relocating and need an early closing date, or have a home to sell, explain your position in the letter, but point out that you are prepared to compensate the seller with a high or full-price offer.
The offer should be accompanied by a copy of the mortgage company’s pre-approval letter, along with a cover letter summarizing your strengths as a buyer in terms of creditworthiness, ability to close, and the strength of your offer. If you’re offering less to the seller than they’re asking, you may need to explain your position by adding your agent’s CMA to the offer so they know how you arrived at what you feel is a fair offer price. If you’re in a hot market, be prepared to compete with other buyers. You may even find yourself in a multiple offer situation. If so, craft your offer to be the most appealing to the seller. Your real estate professional will advise you to make your best offer first. Do not assume you’ll get a chance to rewrite your offer if it’s rejected. The seller has the liberty of ignoring any offer and choosing only the best offer to negotiate.
Keep Your Own Goals Firmly In Mind
Believe it or not, the buyer offering the highest price doesn’t always buy the home. Terms such as possession dates may be a determining factor. A seller who needs to sell but must wait until the end of the school year to move may be grateful for a lease-back clause that allows them to stay a longer while in the home after closing. The best way to position yourself as the buyer whose offer is accepted is to work closely with your agent. He or she can offer valuable input when it comes to making an offer and negotiating price and terms. Don’t lose sight of your own goals.
#28. Negotiating with Sellers
How Do You Negotiate To Get What You Want?
You’ve found the right home, but it’s a little out of your price range, or you need to move in a little sooner than the seller wants. How do you negotiate to get what you want? Sellers and buyers should expect to negotiate some parts of the purchase offer. Your agent and the seller’s agent are experienced negotiators who will keep requests reasonable, non-emotional and on track. To put yourself in the best position to negotiate, make your offer strong from the beginning.
Provide Support For Your Offer
If you offer below the seller’s asking price, support it by showing how you arrived at the number. Your agent can provide you with a comparable market analysis so you have a better idea of what homes similar to the one you’re buying are selling for.
Negotiations Based On Financing
Strong offers come from preapproved buyers. Get preapproved by your lender, so the seller knows you have already begun the loan process and know how much you can afford. If you have a financing contingency and haven’t begun the approval process yet, your seller has no reason to take your offer or negotiations seriously.
Find Out What The Seller Wants
Ask your agent to contact the seller’s agent to find out more what the seller wants as far as terms, as well as what the seller is willing or unwilling to do. The more your offer matches up with the seller’s needs in terms of move-out dates, closing date, etc., the more likely your offer will be accepted, or at least countered.
Find out when the house will be vacated, if it isn’t already, which may tell you if the seller is under pressure, perhaps making two house payments. Also, you’ll want to review a seller’s disclosure of the condition and improvements to the house. Find out if any further repairs or improvements are intended by the seller.
Beat The Competition
Your agent must find out if other offers are on the table. The seller may be less likely to bend on price or repairs if there are other offers.
Sellers want clean, uncomplicated transactions, with as few “ifs” as possible. If you have a contingency such as a home for sale, it puts you at a disadvantage, but sometimes they simply can’t be helped. You may have a house to sell, or you may be transferred by your company and your purchase date must coincide with your start date. Explain in a letter to the seller what your contingency is and how it can be resolved. If your closing is in a week, it’s reasonable to ask the seller for an extended closing. But if you haven’t put your home on the market yet, there’s no reason for the seller to negotiate on this point.
Negotiating After Inspections
If your offer is accepted, negotiations may not be over quite yet. During the inspection process, your inspector may reveal something unexpected that needs to be fixed. Negotiate a repair or improvement is when the system is unsafe or a major repair is needed to make the system operate effectively. If the repair is minor, you may want the seller to fix it, but that could also be a risk. What if the seller received a back-up contract at a higher price? He could use your request for repairs to get out of the contract.
Keeping negotiations to a minimum is best. Every time you open negotiations, your purchase contract is no longer in play, so pick your battles carefully.
#29. What You Don't Know About Disclosures
Most states have laws that require home sellers to disclose what they know about the operating and environmental condition of their homes as well as any situation or encumbrance that may affect the home’s value.
If a shower pan leaked on the floors, and was repaired, that must be disclosed to the buyer, even if there are no outward signs that there was ever a problem. A disclosure form is called a Real Estate Disclosure Statement, Property Condition Disclosure, or Condition Report. They are required by the federal government to disclose the presence of lead paint, and many states require seller disclosures with regard to radon, gas believed to cause cancer.
Some states allow sellers to disclaim disclosures to make an “as is” sale, which means the seller has no intention of guaranteeing the property, but they must do so in writing. Even then they must disclose any material defects they know of. Such forms say something to the effect of “the owner of the real property makes no representations or warranties as to the condition of the property and the purchaser will be receiving the property as is with all defects which may exist”. Even then, the seller must fill out a federal and/or state-mandated disclosure form.
While the forms may ask sellers to disclose whether or not they know there is lead paint or radon present, sellers aren’t usually required to do tests to determine the presence of toxic chemicals. But if the seller notes the existence of a problem, he or she may need to provide proof of tests and/or remediation for any problem that has been disclosed, including fire and water damage.
If you are a seller, your real estate professional will provide you with the disclosure documents you’ll need to sell your home. It’s important to answer every question as truthfully as you can. Your real estate professional can not fill out the disclosure for you. If you’re in doubt about what to disclose, such as a repair, it’s best to err on the side of too much information than not enough. You don’t want to give the buyer any room for complaint after the closing. Sellers aren’t expected to know everything about their homes. Disclosure forms allow you to check the “I don’t know” box, but you should only do so if you truly don’t know the condition of a certain appliance or system. When you disclose a problem to the buyer that has been fixed, be sure to provide a copy of receipts and invoices. The repairs should correspond with the problem. Many agents provide a copy of the disclosure to interested buyers, so they can get an idea of the home’s condition before making an offer or having an inspection.
If you are a buyer, read the seller’s disclosure carefully and use common sense when you see that something has been flagged. Leaks often produce mold, so ask the seller if the area with the leak has been tested for mold. If a seller-disclosed problem hasn’t been fixed, you can either ask the seller to fix it, or offer a little less for the home. Keep in mind that sellers aren’t expected to disclose
what should be obvious or discernible to you as the buyer. Use the disclosure as a guide for what to look at throughout the home. If one shower pan has been replaced, chances are the shower pan in the second bath will need to be replaced soon.
The best way to feel confident about the condition of your home is not to rely on the seller’s disclosure. Have the home inspected by a licensed professional home inspector. For a few hundred dollars and a few hours of your time, you can follow along and learn as much as possible about the condition of your purchase.
#30. Don't Get Overwhelmed
Buying a home can be a paralyzing process. If you find yourself unable to sign on the dotted line, passing up one great home after another, you’re probably feeling financially overwhelmed. You know that few purchases will provide you the quality of life that homeownership does. There are plenty of advantages as well – tax breaks, rising real estate values and a stable environment for the family, just to name a few.
Listen To Your Instincts
If you just can’t seem to find the home that’s right for you, something else may be holding you back – it’s probably money and the fear of spending too much. Stretching to buy the most home you can possibly afford is a good strategy, but only under certain conditions. For example, if you’re confident that your salary will rise, your job is stable, you have the ability to handle large surprise expenses like adding another member to your household. If you’ve been pre-qualified by your lender, then your housing costs should be no more than one-third of your gross income.
But if you fear you won’t have enough in reserves should something happen, listen to your instincts. Ask your real estate professional to show you less expensive homes. If you buy less home, you’ll have more to pay down other debt and to save.
Reasonable Financial Goals
Do you have a conflict in financial goals? Whether you are planning a family, returning to graduate school, paying off a student loan, or buying a new car, your financial pie can only be sliced so many ways. Your mortgage is the largest piece; the larger it is, the smaller the other pieces. Set reasonable financial goals for paying off or adding new debt, and your mortgage won’t loom so large.
“What if” Scenarios
Do you have a fear of the future? Fear can be tamed by looking at the worst case scenarios compared to the best case scenarios. Examine the questions that are really bothering you, like “what if we can’t make our payments?” or “what happens if our home loses value?” Without a crystal ball, you can’t predict the future. But you should be prepared by setting aside savings for planned and unplanned expenses and by keeping low balances on your credit cards so you have a cushion when you need it.
Compare worst cases with best cases – “what if we manage our money so well that we can make double house payments?” or “what if our home goes up in value?”
Buy for the Long Term
You’ll be upside-down in equity for several years after buying a home, because of closing costs, so plan for that. Buy for the long term. Property can go up or down in value, but it’s more likely to stay up with proper maintenance. Rest assured that there will always be a buyer for an attractive, well- maintained property.
Buying a home really comes down to how confident you are about managing your money. If you are worried about cash flow, accelerate your credit card pay-offs and avoid creating new debt. Rebudget your expenses to pay off the largest-cost debts first. Make compromises on your wish list. Don’t be dazzled by any home that is beyond your means.
Shop in your price range with affordability in mind, and you just may find that your dream home will appear right before your very eyes.