Whether you're getting ready to buy your first home or you're a home-buying veteran, there are 5 things you need to do before you sign on the dotted line -- especially in today's market:
1. Plan on staying awhile
The real estate market may be seeing small signs of improvement, but it's nowhere near as healthy as it was pre-recession. (Want proof? Just take a look at mortgage rates, which keep hitting new record lows practically every month!) As a result, the days of buying a home, living in it for a few years, and selling it without losing money are over -- at least for now.
In fact, the Fed says it plans to keep mortgage rates low until at least 2015. That means they believe the housing market still won't be as healthy as it should be a few years down the road. Bottom line -- if you're going to go through the expense and the work of buying a home, you need to be prepared to hang onto it for awhile.
2. Get pre-approved
When you fall in love with a house, you're going to want to put in a serious offer. The only way to do that is to have a lender in your pocket and an amount that you've already been approved for. The last thing you want to do is have your heart set on a $200,000 house and then learn that you can only qualify for a $150,000 mortgage!
3. Study all of your mortgage options carefully
We're definitely in a buyers' market, so you might as well take full advantage of it! Banks are chomping at the bit to get quality borrowers through the doors, so they may offer you all kinds of incentives to sign on the dotted line with them.
The key, though, is to go over all of your options with a fine-toothed comb. That's the only way you're going to make the right decision. After all, you'll be committing to a loan that lasts for 15 or 30 years! You need to make sure it's the right one.
One big thing you'll need to determine is if you can afford to pay points. In some cases, the savings you'll get on your mortgage rate can be worth it. In other cases, it's more cost-effective to go with a no-point loan -- even if it means paying a slightly higher rate. Only you (and your mortgage calculator!) will be able to determine if points are right for you.
4. Aim for a bigger down payment
In the down payment world, the number 20 is huge -- as in 20%. If you can afford to put down 20%, you won't have to worry about paying private mortgage insurance (something that can cost you around $100 a month, on top of your mortgage payment!). Plus, making a bigger down payment means you'll be able to get a smaller loan -- which means it will be easier to get approved for.
If you absolutely-positively-cannot afford a 20% down payment, you're not completely out of luck. There are mortgage options out there that allow for smaller down payments. Just bear in mind that you may have to deal with additional expenses and red tape.
5. Get your own inspector
Your lender will have the house appraised before it officially lets you buy it. However, appraisals only determine the value of the property. If you want to know what's really going on inside the home, you'll need an inspector. He can tell you if certain things need to be repaired, if certain things violate local codes, and if certain things look like they're going to break sooner rather than later. That way, you'll have a good idea of how much money you'll have to sink into this home if you buy it. Some houses are simply more work than they're worth!
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