Below you will find the answers to the following frequently asked questions. You can click any of the questions to navigate directly to the answer.
- How can I prepare to become a home owner?
- What are some common mistakes I should avoid?
- What are the advantages of working with a realtor?
- What are the advantages of owning my own home?
- Does buying a home have to be stressful?
- How can I find the home that’s right for me?
- How do I find the perfect neighborhood?
1. Decide what you can afford. Generally, you can afford a home equal in value to between two and three times your gross income.
2. Develop your home wish list. Then, prioritize the features on your list.
3. Select where you want to live. Compile a list of three or four neighborhoods you’d like to live in, taking into account items such as schools, recreational facilities, area expansion plans, and safety.
4. Start saving. Do you have enough money saved to qualify for a mortgage and cover your down payment? Ideally, you should have 20 percent of the purchase price saved as a down payment. Also, don’t forget to factor in closing costs. Closing costs — including taxes, attorney’s fee, and transfer fees — average between 2 and 7 percent of the home price.
5. Get your credit in order. Obtain a copy of your credit report to make sure it is accurate and to correct any errors immediately. A credit report provides a history of your credit, bad debts, and any late payments.
6. Determine your mortgage qualifications. How large of mortgage do you qualify for? Also, explore different loan options — such as 30-year or 15-year fixed mortgages or ARMs — and decide what’s best for you.
7. Get pre-approved. Organize all the documentation a lender will need to pre-approve you for a loan. You might need W-2 forms, copies of at least one pay stub, account numbers, and copies of two to four months of bank or credit union statements.
8. Weigh other sources of help with a down payment. Do you qualify for any special mortgage or down payment assistance programs? Check with your state and local government on down payment assistance programs for first-time buyers. Or, if you have an IRA account, you can use the money you’ve saved to buy your fist home without paying a penalty for early withdrawal.
9. Calculate the costs of home ownership. This should include property taxes, insurance, maintenance and utilities, and association fees, if applicable.
10. Contact a realtor. Find an experienced realtor who can help guide you through the process.
Source: “10 Ways to Prepare for Home Ownership.” REALTOR Magazine via the National Association of Realtors
1. They don’t ask enough questions of their lender and end up missing out on the best deal.
2. They don’t act quickly enough to make a decision and someone else buys the house.
3. They don’t find the right agent who’s willing to help them through the home-buying process.
4. They don’t do enough to make their offer look appealing to a seller.
5. They don’t think about resale before they buy. The average first-time buyer only stays in a home for four years.
Source: “5 Common First-Time Home Buyer Mistakes.” Real Estate Checklists and Systems, www.realestatechecklists.com.
1. You’ll have an expert to guide you through the process. Buying or selling a home usually requires disclosure forms, inspection reports, mortgage documents, insurance policies, deeds, and multi-page settlement statements. A knowledgeable expert will help you prepare the best deal, and avoid delays or costly mistakes.
2. Get objective information and opinions. Realtors can provide local community information on utilities, zoning, schools, and more. They’ll also be able to provide objective information about each property. A professional will be able to help you answer these two important questions: Will the property provide the environment I want for a home or investment? Second, will the property have resale value when I am ready to sell?
3. Find the best property out there. Sometimes the property you are seeking is available but not actively advertised in the market, and it will take some investigation by your realtor to find all available properties.
4. Benefit from their negotiating experience. There are many negotiating factors, including but not limited to price, financing, terms, date of possession, and inclusion or exclusion of repairs, furnishings, or equipment. In addition, the purchase agreement should provide a period of time for you to complete appropriate inspections and investigations of the property before you are bound to complete the purchase. Your agent can advise you as to which investigations and inspections are recommended or required.
5. Property marketing power. Real estate doesn’t sell due to advertising alone. In fact, a large share of real estate sales comes as the result of a practitioner’s contacts through previous clients, referrals, friends, and family. When a property is marketed with the help of a realtor, you do not have to allow strangers into your home. Your realtor will generally prescreen and accompany qualified prospects through your property.
6. Real estate has its own language. If you don’t know a CMA from a PUD, you can understand why it’s important to work with a professional who is immersed in the industry and knows the real estate language.
7. Realtors have done it before. Most people buy and sell only a few homes in a lifetime, usually with quite a few years in between each purchase. And even if you’ve done it before, laws and regulations change. Realtors, on the other hand, handle hundreds of real estate transactions over the course of their career. Having an expert on your side is critical.
8. Buying and selling is emotional. A home often symbolizes family, rest, and security — it’s not just four walls and a roof. Because of this, home buying and selling can be an emotional undertaking. And for most people, a home is the biggest purchase they’ll ever make. Having a concerned, but objective, third party helps you stay focused on both the emotional and financial issues most important to you.
Source: “Why You Should Work With a Realtor.” REALTOR Magazine via the National Association of Realtors
1. Tax breaks. The U.S. Tax Code lets you deduct the interest you pay on your mortgage, your property taxes, as well as some of the costs involved in buying your home.
2. Appreciation. Real estate has long-term, stable growth in value. While year-to-year fluctuations are normal, median existing-home sale prices have increased on average 6.5 percent each year from 1972 through 2005, and increased 88.5 percent over the last 10 years, according to the NATIONAL ASSOCIATION OF realtors. In addition, the number of U.S. households is expected to rise 15 percent over the next decade, creating continued high demand for housing.
3. Equity. Money paid for rent is money that you’ll never see again, but mortgage payments let you build equity ownership interest in your home.
4. Savings. Building equity in your home is a ready-made savings plan. And when you sell, you can generally take up to $250,000 ($500,000 for a married couple) as gain without owing any federal income tax.
5. Predictability. Unlike rent, your fixed-mortgage payments don’t rise over the years so your housing costs may actually decline as you own the home longer. However, keep in mind that property taxes and insurance costs will increase.
6. Freedom. The home is yours. You can decorate any way you want and benefit from your investment for as long as you own the home.
7. Stability. Remaining in one neighborhood for several years gives you a chance to participate in community activities, lets you and your family establish lasting friendships, and offers your children the benefit of educational continuity.
Online resources: To calculate whether buying is the best financial option for you, use the “Buy vs. Rent” calculator at www.GinnieMae.gov.
Source: “7 Reasons to Own Your Home.” REALTOR Magazine via the National Association of Realtors
Buying a home should be fun, not stressful. As you look for your dream home, keep in mind these tips for making the process as peaceful as possible.
1. Find a real estate agent who you connect with. Home buying is not only a big financial commitment, but also an emotional one. It’s critical that the realtor you chose is both highly skilled and a good fit with your personality.
2. Remember, there’s no “right” time to buy, just as there’s no perfect time to sell. If you find a home now, don’t try to second-guess interest rates or the housing market by waiting longer — you risk losing out on the home of your dreams. The housing market usually doesn’t change fast enough to make that much difference in price, and a good home won’t stay on the market long.
3. Don’t ask for too many opinions. It’s natural to want reassurance for such a big decision, but too many ideas from too many people will make it much harder to make a decision. Focus on the wants and needs of your immediate family — the people who will be living in the home.
4. Accept that no house is ever perfect. If it’s in the right location, the yard may be a bit smaller than you had hoped. The kitchen may be perfect, but the roof needs repair. Make a list of your top priorities and focus in on things that are most important to you. Let the minor ones go.
5. Don’t try to be a killer negotiator. Negotiation is definitely a part of the real estate process, but trying to “win” by getting an extra-low price or by refusing to budge on your offer may cost you the home you love. Negotiation is give and take.
6. Remember your home doesn’t exist in a vacuum. Don’t get so caught up in the physical aspects of the house itself — room size, kitchen, etc. — that you forget about important issues as noise level, location to amenities, and other aspects that also have a big impact on your quality of life.
7. Plan ahead. Don’t wait until you’ve found a home and made an offer to get approved for a mortgage, investigate home insurance, and consider a schedule for moving. Presenting an offer contingent on a lot of unresolved issues will make your bid much less attractive to sellers.
8. Factor in maintenance and repair costs in your post-home buying budget. Even if you buy a new home, there will be costs. Don’t leave yourself short and let your home deteriorate.
9. Accept that a little buyer’s remorse is inevitable and will probably pass. Buying a home, especially for the first time, is a big financial commitment. But it also yields big benefits. Don’t lose sight of why you wanted to buy a home and what made you fall in love with the property you purchased.
10. Choose a home first because you love it; then think about appreciation. While U.S. homes have appreciated an average of 5.4 percent annually over from 1998 to 2002, a home’s most important role is to serve as a comfortable, safe place to live.
Source: “Take the Stress Out of Home-Buying.” REALTOR Magazine via the National Association of Realtors
1. Research before you look. Decide what features you most want to have in a home, what neighborhoods you prefer, and how much you’d be willing to spend each month for housing.
2. Be realistic. It’s OK to be picky, but don’t be unrealistic with your expectations. There’s no such thing as a perfect home. Use your list of priorities as a guide to evaluate each property.
3. Get your finances in order. Review your credit report and be sure you have enough money to cover your down payment and closing costs. Then, talk to a lender and get prequalified for a mortgage. This will save you the heartache later of falling in love with a house you can’t afford.
4. Don’t ask too many people for opinions. It will drive you crazy. Select one or two people to turn to if you feel you need a second opinion, but be ready to make the final decision on your own.
5. Decide your moving timeline. When is your lease up? Are you allowed to sublet? How tight is the rental market in your area? All of these factors will help you determine when you should move.
6. Think long term. Are you looking for a starter house with plans to move up in a few years, or do you hope to stay in this home for a longer period? This decision may dictate what type of home you’ll buy as well as the type of mortgage terms that will best suit you.
7. Insist on a home inspection. If possible, get a warranty from the seller to cover defects for one year.
8. Get help from a realtor. Hire a real estate professional who specializes in buyer representation. Unlike a listing agent, whose first duty is to the seller, a buyer’s representative is working only for you. Buyer’s reps are usually paid out of the seller’s commission payment.
Source: “8 Tips to Guide for Your Home Search.” REALTOR Magazine via the National Association of Realtors
Your neighborhood has a big impact on your lifestyle. Follow these steps to find the perfect community to call home.
Is it close to your favorite spots? Make a list of the activities — movies, health club, church, etc. — you engage in regularly and stores you visit frequently. See how far you would have to travel from each neighborhood you’re considering to engage in your most common activities.
Check out the school district. This is especially important if you have children, but it also can affect resale value. The Department of Education in your town can probably provide information on test scores, class size, percentage of students who attend college, and special enrichment programs. If you have school-age children, visit schools in the neighborhoods you’re considering. Also, check out www.schoolmatters.com.
Find out if the neighborhood is safe. Ask the police department for neighborhood crime statistics. Consider not only the number of crimes but also the type — such as burglaries or armed robberies — and the trend of increasing or decreasing crime. Also, is crime centered in only one part of the neighborhood, such as near a retail area?
Determine if the neighborhood is economically stable. Check with your local city economic development office to see if income and property values in the neighborhood are stable or rising. What is the percentage of homes to apartments? Apartments don’t necessarily diminish value, but do mean a more transient population. Do you see vacant businesses or homes that have been for sale for months?
See if you’ll make money. Ask a local realtor or call the local realtor association to get information about price appreciation in the neighborhood. Although past performance is no guarantee of future results, this information may give you a sense of how good of an investment your home will be. A realtor or the government planning agency also may be able to tell you about planned developments or other changes in the neighborhood — like a new school or highway — that might affect value.
Make personal observations. Once you’ve narrowed your focus to two or three neighborhoods, go there and walk around. Are homes tidy and well maintained? Are streets quiet? How does it feel? Pick a warm day if you can and chat with people working or playing outside.
Source: “Tips for Finding the Perfect Neighborhood.” REALTOR Magazine & NATIONAL ASSOCIATION OF REALTORS
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