As the events of the last several years in the real estate industry show, people forget about the tremendous financial responsibility of purchasing a home at their peril. Here are a few tips for dealing with the dollar signs, so that you can take down that “for sale” sign on your new home.
Get pre-approved. Sub-primes may be history but you’ll probably still be shown homes you can’t actually afford. By getting pre-approved as a buyer, you can save yourself the grief of looking at houses you can’t afford. You can also put yourself in a better position to make a serious offer when you do find the right house. Unlike pre-qualification, which is based on a cursory review of your finances, pre-approval from a lender is based on your actual income, debt and credit history. By doing a thorough analysis of your actual spending power, you’ll be less likely to get in over your head.
Choose your mortgage carefully. The mortgage emphasis used to be on paying it off as soon as possible. Today, the average debt a person will accumulate due to credit cards, student loans, etc. means it’s usually better to opt for the 30-year mortgage instead of the 15-year. That way, you have a lower monthly payment, with the option of paying an additional principal when money is good. Additionally, when picking a mortgage, you usually have the option of paying additional points (a portion of the interest that you pay at closing) in exchange for a lower interest rate. If you plan to stay in the house for a long time, taking the points will save you money.
Do your homework before bidding. Before you make an offer on a home, do some research on the sales trends of similar homes in the neighborhood with sites like Zillow. Consider sales of similar homes in the last three months. For instance, if homes have recently sold for 5% less than the asking price, your opening bid should probably be about 8-10% lower than what the seller is asking. An experienced real estate advisor can be very helpful with this strategy.