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5 Things You Need to Know Before Buying a Home

Are you planning on buying a home? Then you definitely need to read this article. It will explain the 5 crucial things that you need to know before you dive into your home buying venture.

The goal here is for you to have your dream home, but don’t want surprising circumstances to arise and you to not be aware of them.

Are you properly prepared for buying a home? Do you know about the top 5 things every buyer should be aware of before they buy their home?

In this short article, I will cover the following. Now I know it seems like a lot to cover, but trust me, I’ll keep it plain, simple, and to the point. My goal here is to get you into the house you want. 

Discover:

  • What banks look at before they will give you a loan.
  • Unforeseen costs that even the most well prepared buyer may have to deal with.
  • A quick and accurate calculation to determining what you can REALLY afford.
  • What to do if you can’t afford to put down the required percentage on a home loan.
  • How to be sure the house you are buying is ready to be sold.

 

 

So, what are the banks looking at before they give you a loan?

I suppose the most obvious factor would be your credit. Do take into account that different lenders all have different rules about your credit score number.

Another aspect the bank will look at is your income-to-debt ratio. This basically means that they want to make sure you’re not spending more than you are earning, and that they can feel confident that you will be able to pay back the loan.

My suggestion would be to go to your bank and get pre-approved. There are a few good reasons for doing this. Let’s say that you find a house you love, but your bank wouldn’t approve the loan for the amount of the purchase. This would be devastating. Get pre-approved before you go house shopping.

Once you’re pre-approved you will know what your budget is on a home, and you won’t have to worry about getting a loan.

Also, don’t forget that banks want a certain percentage down on your mortgage; this is most certainty an important percentage to know beforehand.

 

Are you prepared for the unforeseen costs that you will have to deal with when buying a home?

There are a very wide variety of costs associated with buying a home, and the most common one is the home inspection.

Generally the seller will volunteer to pay for the inspection, because they are happy to be selling their house and are helping you buy it any way they can; however, there are some sellers who will insist that you, as the buyer, pay for the inspection.

An inspection is not something you want to get the cheapest deal on. When it comes to inspecting a home you will live in for the next decade or so, it’s crucial to have an honest and accurate home inspection.

You will also want to make sure you state in the contract what will happen if the inspector finds a problem that was not disclosed by the seller. You have the right to insist that the seller fix these problems before the house can be sold.

Now this doesn’t mean that the seller will just up and pay, he/she has the right to insist that you pay as well.

You may also want to state a contingency that if the seller refuses to pay for these problems, you have the right to back out completely from the contract.

Closing costs are another debatable item between buyers and sellers. Since there is no law as to who has to pay these associated fees, it’s left up to the buyer and the seller to negotiate. Finding a seller who is willing to pay for a home inspection AND all of the closing costs is rare.

As a rule of thumb, closing costs are going to run you about 2 to 4 percent of the purchase price. That’s a good chunk of change, and if you have a seller who is unwilling to pay these costs, guess who is going to pay them?

Sometimes the buyer and the seller will come to an agreement and meet halfway with the closing costs.

On top of this, you’ll have an application fee, appraisal fee, attorney fees, title fees and more.

The bottom line here is to make sure that you are prepared for these fees and some unforeseen fees that may come into play when buying your home. Put some money back if need be, but be prepared.

If you want to determine what you can probably really afford, there is a simple calculation you can do to achieve an estimate.

Take your annual salary (net not gross) and multiply it two and a half times. If you have a spouse, add in his/her salary too. You won’t want to buy a house that has a price tag larger than this number.

 

 

If you don’t have the required percentage to put down, here are your options…

Most banks are going to require that, in addition to having a good credit score, you will need to come up with a certain percentage of your loan amount as a down payment.

A lot of people just don’t have that amount of money saved up. If you’re in this position, there are a couple of options that you may want to look into.

FHA loans are government guaranteed mortgages require a lower down payment. This is a lot less than the traditional percentage, but keep in mind that you will still have to pay your closing costs.

I will go ahead and tell you that in order to qualify for this loan, you are going to have to have a set number of years of steady employment with a stable or increasing income, a  specific minimum credit score, no bankruptcies in the last certain number of years, no foreclosures in the last certain number of years, and a mortgage payment no more than a certain percentage of your gross income. There are also limits as to how much you can borrow and these limits are directly related to the area that you live in.

Finally, you do have to pay a premium of the loan amount at closing. This can be rolled into your mortgage, but keep in mind that your monthly payments will increase if you do that.

You could also get private mortgage insurance. Insuring your loan will appeal to your bank, and may not require much to put down. The premiums on this insurance vary, but the more money you put down on the loan, the more the premiums are reduced.

Another option that may be right for you is a piggyback loan. Piggyback loans are basically two different loans. One loan would cover a much higher percentage of the home value, and the other “piggyback loan” would cover the rest of it, minus your down payment.

However, just like everything else, there are disadvantages to these types of loan options. One major disadvantage would be higher interest rates, which means higher monthly payments.

You also may wind up paying a “balloon payment” at the end. This is a final payment that’s a lot bigger than your normal payments. If you do choose to do this, make sure to save up for it.

The bottom line is that buying a house is a very expensive investment, and it’s always better to put a good amount down, but if you can’t afford it at the time of purchase, there are other options. Just be careful to research all of the conditions that go along with these options.

 

 

How to be sure the house you are buying is ready to be sold…

Now I want to cover a few simple methods that you can do to ensure that the house you’ve decided to buy doesn’t have any damage that you’re unable to live with!

The last thing you want is to end up with a house that has a million and one things wrong with it, but you’ve already signed on the dotted line. Make sure you figure these things out before you make any kind of legal agreement.

One obvious solution is worth mentioning again, and that solution is a home inspection. These are very inexpensive (especially for what you’re getting) and if you get a good home inspector, he/she will be able to point out everything that’s not 100% on the house.

The main focus of the home inspection will be the mechanical and electrical condition of the property.

The inspector will check the roof, chimney, gutters, windows, doors, porch, heating, a/c, electric plugs and fixtures, the floors, the walls, the ceilings, bathrooms, kitchen, etc.

You wouldn’t want to be moving into a house that has an unstable foundation or could catch fire from a hack wiring job.

I heard a story about a guy who bought a house that was built in the 1920’s. He fell in love with it because of the original hardwood floors, and he said that’s what “sold” him on the house. What he didn’t do was get a home inspection, because if he’d gotten one, he would have realized that the people who lived there before him re-wired the entire house themselves.

I won’t go into the details, but basically the house was a standing fire hazard, and the guy had to pay an unexpected $5,000 after he discovered the problem. By then he’d already signed the contract and the sellers were no longer obligated to do anything to fix it.

Had he gotten an inspector, the inspector would have pointed out this very obvious problem that the buyer so easily overlooked.

Home add-ons seem to be another one of the most common problems. Previous owners decide they want to update the home, yet they aren’t licensed nor do they get the proper permits to do this.

If the home you are purchasing has add-on rooms or rooms that have been “renovated”, let that raise a red flag and make sure you inspect their work and question them about how they did it.

In conclusion, you will probably never be 100% prepared for all of the surprises that may pop up when buying a home, but I hope this short guide has given you some insight to the buyer’s world, helped you make some decisions, and helped prepare you for what may come down the road.

***Please be aware that any numbers/percentages are only estimates, and all information is subject to change.

P.S. There are other important elements that I would love to explain, and help you with, to get you into your new home. If you need an agent who is going to watch your back during the whole buying process, and verify correct and up to date information, call Spring Creek Realtors. We would love to work with you!

 

Spring Creek Realtors Toll Free: (800) 660-2121 / Office: (208) 733-2121

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