Financial Friday: 5 Things to Consider When Purchasing a Home

Filed in Uncategorized by on April 4, 2014 0 Comments

Last year, I was working to prepare to purchase a home.  There were several factors in the decision to purchase at that time.  The key is to know your criteria and rank them in order of importance for you.  You also must be aware of some of the challenges and pitfalls of purchasing a home.  Here are five things to consider when taking the big leap:

African American Couple & House For Sale Sold SignDon’t Buy “Too Much” House

I phrase the subtopic this way, because “too much” is not necessarily a home that’s too expensive, or too big, it depends on your circumstances.  Even after the financial collapse in our economy in 2008, lenders still provide the option to purchase a lot of house, possibly a lot more than you are looking for.  Make a list of what you want in your house and stick to it:

  • Decide how many bedrooms and baths you need
  • Decide what square footage is comfortable to you.  If you want a 2500 sq. ft. home and you purchase a 4000 sq. ft. home, you may never use the extra space, and it’s more house to heat, cool and clean!
  • You determine your budget as to what you want and what you can afford.  No one else, including the mortgage company or realtor, can make that determination for you.

As a follow up to the last bullet point, mortgage companies will routinely qualify you for a more expensive home than you would like to pay for.  If that home is not what you were looking for, do not take that route.  What the mortgage company won’t share is that more expensive means more than just the mortgage payment.  A more expensive home usually includes higher utilities, higher homeowner’s association fees and higher taxes.  Do you research, determine what you want and stick to what you want, not what someone wants for you.

Use a Good Realtor

Real estate agents are professionals who help you buy and sell your home.  You will see many photos in signs around every neighborhood for realtors in your areas.  Get referrals from your friends, relatives and co-workers.  All realtors are not created equal.  You want responsiveness and a realtor who can help move along the negotiation and even help with the closing process.  Having a great realtor makes the process much easier; it definitely made things much smoother for me.

Get Pre-Approved for Your Mortgage

You can save yourself many challenges later if you get pre-approved early in the house-hunting process.  This is different than a pre-qualification, which is not looking very in-depth into a borrower’s financials, but a lender looking at your overall financial picture, including assets, debt and income.  Pre-Approval actually looks at your credit scores and income verification to begin much of the pre-closing process.  If you are pre-qualified, the realtors and any sellers feel much more comfortable working with you as you are much more likely to be able to close a deal.

Location, Location, Location

Those three words are a mantra long held in the real-estate industry.  Where a person wants to live is at the top of every home buyer’s list.  Decide on your location, but be reasonable about your expectations.  If you have a $140,000 budget but your desire neighborhood’s median home price is $200k, it’s going to be challenging to find a home with your budget in that neighborhood.  Research the market to help you wrap your mind around your budget and your location preferences being in sync.  This is often a challenge for new homebuyers.

Alternative Methods of Purchase

Our home buyer who couldn’t purchase a home in the 200k neighborhood with the $140k budget might be able to do it if they are willing to make some sacrifices.  If you are willing to look at foreclosures or short sales, you may have to wait a little longer to close or put in some work on your home.  In the end you could be in the neighborhood you want at a budget that’s comfortable for you.

Short sales are purchases made with the bank and seller working together for them to sell the house, but the bank will take a bit of a loss.  The seller won’t make any money, but they are able to sell their home and not have a foreclosure on their credit report.  These loans often take longer to close, simply because banks do not work hard to help close a loan they are losing money on.  You will need a diligent realtor and a good mortgage company to work with you to close this type of loan.  I bought a home that was a short sale and it took about four months to close.  The time of close on these loans vary from about three to six months.  Short sales are often great investments on homes that need only very moderate amounts of work at a low cost.  If you can manage to wait a few months to close, I recommend short sales in many cases.

Foreclosures can also be tough to close, but they can come at bargain basement prices.  Foreclosed homes will often need major repair, so make sure to get a good home inspection before the purchase of a foreclosed home.  Again, a good realtor and mortgage company will make the process run much more smoothly to close this type of home.

There are other important factors your realtor can assist with.  You will want to get the best interest rates, consider your property taxes, understand what a FHA loan vs. a conventional loan is and get information on PMI (private mortgage insurance).  There are lots of details a great realtor and mortgage can walk you through on your way to the American dream of home ownership.

If you have any questions about any facet of the home-buying process, feel free to ask in the comments below.

 

Jay Hurt © 2014

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About the Author ()

Jay Hurt is the author of The 9 Tenets of a Successful Relationship-for Singles. Personal experience, a liberation through faith and an appreciation for his perspective led Jay to share his insight on relationships. Dealing with challenging topics by confronting them with faith and common sense, Jay aspires to share wisdom to help others become fulfilled and blessed in their relationships. Jay lives in Nashville, TN and has two daughters, Kristina and Jalen.

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