How Should I Prepare to Buy?

First Step to Buying a Home

Make sure you are ready – psychologically and financially. Ask yourself the following questions:

  • Do I have a steady income?
  • Is my debt lower than my total income?
  • Do I have enough money to pay for the down payment or closing costs?
  • Am I working hard enough to improve bad credit?

A house needs constant care and attention. Also ask yourself if your budget will allow for unexpected repairs and upkeep. Once you can honestly answer “yes” to these questions, you are several steps ahead of the game and that much closer to becoming a homeowner.

How Much You Can Afford?

The general rule of thumb is that you can buy a home that costs about two-and-one-half times your annual salary. A good REALTORĀ® or lender can determine how much you can afford and estimate the maximum monthly payment based on the loan amount, taxes, insurance and other expenses. To find out now how your income, debts, and expenses can affect what you can afford, use a mortgage calculator to figure out how much you may be able to borrow to purchase a home.

Another step in the right direction is to work with a preferred lender to pre-qualify for a mortgage loan. Getting pre-qualified not only helps you figure out how much you can afford, it will help give you leverage in negotiating the purchase price of the property.

What Type of Home to Purchase?

It can take a long time to save for that perfect dream home. Meanwhile, the market has been flooded with some of the most favorable mortgage interest rates in years. Low rates make housing more affordable, which is why so many buyers have jumped on the home buying bandwagon.

If you purchase a starter home today, you can potentially begin to build value that can lead to the purchase of a larger, or more desirable, trade-up home in the future.

Location, Location, Location

Location remains the single most important factor when choosing a home. It can make or break the value and desirability of a home.

Because everyone’s preferences vary, your lifestyle will determine the best place for you to live. Some people prefer the suburbs while others thrive on downtown living. If you favor city living, find out what part of the city suits you best – a fast-paced neighborhood or one slightly more subdued.

Talk with the neighbors and keenly observe such things as traffic patterns, lifestyles, and even sounds and smells.

When choosing a town, take property taxes, schools, accessibility to work, services, recreation, and the character of the community into consideration.

Making an Offer

Do your homework before making an offer. Compare prices of recently sold homes and new listings in the neighborhood. It also helps to know something about the seller’s motivation. A lower price with a speedy closing, for example, might motivate a seller who must move, has another house under contract, or must sell quickly for other reasons.

Home Inspection

Buying a home without getting expert advice is risky. Once a home inspector uncovers major plumbing and electrical problems, for example, you may decide you do not want to spend several thousand dollars on repairs.

Always include an inspection clause in your written offer. This clause gives you an “out” from buying if serious problems are detected. It also gives you another chance to negotiate the purchase price if repairs are needed. The clause can even specify that the sellers fix any problem that is uncovered before you settle, or close, on the home.

You also may want to consider hiring experts to inspect the home for a number of health-related risks like radon gas, asbestos, or possible problems with the water or waste disposal system.

Purchasing Foreclosure / Auction Homes

Buying directly at a legal foreclosure sale is risky. Among the disadvantages:

  • There is no financing. You need cash and lots of it.
  • The title needs to be checked before the purchase. If not, you risk assuming a seriously deficient title.
  • It may not be possible to inspect the property’s interior before the sale. So you have no idea of the property’s condition.
  • Foreclosures are routinely purchased “as is,” which means you cannot go back to the seller for repairs.
  • Also, estate and foreclosure sales are the only property sales that are exempt from some state disclosure laws. In both instances, the law protects the seller – usually the heir or financial institution – who has recently acquired the property through adverse circumstances and may have little or no direct information about it.

With that being said, if you are willing to take these risks when purchasing a foreclosed property, you may be able find a great deal on a foreclosed property in today’s market.