With low interest rates and many houses on the market, it’s the perfect time to buy. There following are some tips to help you make the right choice.
While renting an apartment might suit your needs at one time or another, there are benefits to home ownership, such as building equity and tax breaks. If you are thinking of buying a first home, or even looking at purchasing for an investment, there are some pitfalls that first time buyers must be aware of. So if you’re renting, you might want to stop, because according to CNN, it’s cheaper to buy than it is to rent.
Don’t Rush Into Anything
If you’re seriously considering buying, it’s tempting to begin looking right away. And while internet searches are fun, as are occasional open houses to see what’s on the market, don’t jump into anything too soon. You run the risk of falling in love with something you’re not even sure if you would get mortgage approval for.
It is best to get your finances in order first; get copies of your credit reports and clear up any discrepancies. If your credit score isn’t great, you might want to wait 6 months to a year before applying for a mortgage. Use this time to continually pay down any large debts, save for a down payment, and be extra diligent about paying bills on time. All of these financial cares will help you qualify for a better interest rate.
Save as Much as You Can
There are many mortgages advertised as being at an « all time low, » though be wary of lenders who offer you a loan without a down payment. Taking a 100% mortgage runs the risk of you owing more money than the house is worth, should the market drop at all, even as little as 1%. Since you can’t refinance until you’ve paid at least 20% of the purchased value, not putting any down payment is a risky move that’s best avoided.
As a rule of thumb you should have a targeted down payment of at least 10% of the purchase price to reap the benefits of lower interest rates. To avoid paying PMI, or Personal Mortgage Insurance, lenders will require a 20% down payment, therefore if this is possible, it’s always advisable to aim for the highest down payment. In the case of a 20% down payment on a $280,000 NJ home, the mortgage, insurance and taxes of a 20 year loan turns out to be cheaper per month than renting a small apartment in Hoboken. Plus, the interest on mortgage is tax deductible, something that can’t be said for any rent.
Get a Pre-Qualification from Your Lender
In today’s tight economy, most realtors and sellers won’t give serious consideration to clients without them pre-qualifying for a loan first. Getting this information from a financial institution does not obligate you to take a loan with them. Gaining the help of financial experts will give you a benchmark of how much money you can borrow to purchase a house, as well as what your monthly payment plus insurance will be. Having a pre-qualification certificate in hand tells realtors you are worth their time and sellers your bid is worth considering.
Be Ready for the Worst, Hope for the Best
Once you have all your ducks in a row and have been looking at houses with a realtor, you will eventually find your dream home and want to make an offer. However, the chances that you are the only one who thinks the house is great are rather small, therefore hope for the best, but be ready for disappointment. Don’t get your heart too set an any one property; you may have to make a number of offers before one is accepted. Avoid bidding wars, at times like this when the housing market is flooded with sellers. There are MANY great houses out there, and now is not the time to overpay for ANYTHING, whether it is rent or a new home.
Don’t be Afraid to Ask Questions
Remember, your realtor works for you, so don’t hesitate to ask questions. A good realtor will be a wealth of information from the beginning, and The New York Times states that a realtor can be your greatest ally. Ask questions about the home and look at everything, not just the features you love. A realtor will help point out the pros and cons to every house you look at, including if there’s any signs of water leakage, musty basements or aging roofs. If you feel that your realtor isn’t revealing the full picture, or down playing a potential problem, find a new realtor. It can’t be stressed enough that your realtor works for you, and buying a home is a long term commitment, so let the buyer beware! Plus, thousands of your dollars from the sale are going to the realtors on both sides, so spend wisely.
Once everything falls into place, and it will, don’t exchange any money, or sign any papers without the help of an attorney. While it may be tempting to save money by not going through a lawyer and making a deal between you and the seller, don’t do it. Attorneys protect their clients and will make sure that there’s nothing in the buyers contract that will come to bite you in the rear end later on.
In the end, go with your gut . . . . if something seems to good to be true, it is, and if something seems fishy, it probably is. This is your new home, so you have to be comfortable in it.