10 CRUCIAL THINGS TO DO BEFORE BUYING A HOME



                                 

10 CRUCIAL THINGS TO DO BEFORE BUYING A HOME


                      FEBRUARY 25, 2015 BY LAUREN BOWLING | THIS POST MAY CONTAIN AFFILIATE LINKS



Buying a home is an intense process, especially so for first-timers.I've gotten a lot of questions about how to get the ball rolling, so I've compiled all of my knowledge here. Below are the 10 things to do before buying a home. Some of these are common best practices, and others are from my own experiences; the things I wish I'd known before buying my own little gem.



1. BUILD YOUR WISHLIST

Everyone has a wish list for what they want in a home, whether you are currently looking, in a home already, or still renting and compiling a list of your “must haves” for the future. I've been making a  list in my head since I was ten, and even though I own a home currently, I still think about what features I'd like to have in the future.
Here's a chart of what I had on my wish list back when I bought my first home in 2013 and how the home I bought stacked up.
Obviously, if you watch enough house hunters you'll know that wish lists don't line up with budgets most of the time, but it is still good to have a rough idea of what you'd like before you aggressively begin to search. A wish list will also help an agent find homes best suited to your needs.

2. DO A DRIVE-BY

House hunting is exciting. Truly. It is also exhausting. Before you make an appointment to physically see a home, leverage the internet to do a little bit of detective work. See if any photos are available online. Those will go a long way to narrowing down your list.
Then, before you ever make an appointment, do a drive by of the home(s) you're interested in. Do one drive by during the day time, and then another at night for each house. Neighborhoods can look a lot different during the day, or you may notice a few issues with the home during the drive by that weren't noted/pictured on the internet listing. This was crucial for me, as I was able to narrow down ten homes off my initial list of 20 just by doing drive-bys.
Best of all this can be done on your own time, so you're only truly visiting homes with your realtor that you have vetted.

3. GET PRE-QUALIFIED FOR A MORTGAGE (& COMPARISON SHOP FOR A COMPETITIVE INTEREST RATE!)

You should get pre-qualified for a mortgage before you begin seriously shopping (read: touring homes instead of just browsing online) so you know how much home you can afford. Being pre-qualified also lets sellers know you mean business.
Depending upon your status and credit score, you may also qualify for an FHA loan. An FHA loan often enticers buyers with sexy interest rates and lower down payments (FHA loans can get by with as low as 3.5% down!) It's good to get it if you can, especially as a first-timer who may not have so much cash or liquidity.

4. BID APPROPRIATELY AND UNEMOTIONALLY

Ask your realtor to research comparable properties in your area before you make a bid. Whatever the average selling price of other homes in the area is, try to start a little bit lower in case the seller wants to negotiate (which in 99% of cases, they will. They have financial goals too!)
Try to avoid a “bidding war” at all costs. From my own experience, a bidding war becomes more about emotions than good common sense. I ended up bidding way too much on the home I have now. I won the war, but later had to fight the bank to reduce the price after the inspection turned up a lot of damage.
Sometimes I wonder how much I would have saved had I bid a bit more conservatively. Research, and doing a second tour of the home during a bidding war can help with this.

5. BUDGET FOR NOT-SO-HIDDEN FEES

Generally everyone accepts a few expenditures as part of the home buying process: the down payment, realtor commissions, homeowner's insurance, and the like.
But there are also lots of other fees that can be associated with buying a home, particularly if you are buying a foreclosed home, getting an FHA loan, or lumping renovation costs in with a mortgage. Here's an example of fees I paid
  • Earnest Money ($500-$1000)
  • Home Inspection ($300-500)
  • Home appraisal ($4-500),
  • a HUD Consultant fee (If buying a foreclosure and doing a 203k renovation loan, this is typically $4-500 paid at the outset of the renovation),
  • $250 in document preparation fees to an attorney at closing
  • $15 for a home buyer's education class
  • $30 in cashiers check fees and postage.
I think all told it took me $2100 just to get to closing. This wasn't paid out at one time, rather over the course of 6 weeks but still….Yikes!
You can use the spreadsheets in my Grow Your Money Tree tool kit to help set a budget and stick to it. You'll get $5 as a first time home buyer if you use this special link. Yay!

6. PREPARE FOR AN APPRAISAL

I mentioned above the need for an appraisal. Since the housing crash of 2008, many banks have tightened their lending terms. They will no longer approve a mortgage on a home if it does not appraise for that value, no matter how much you're willing to pay for a home, or if the home falls under the amount you're pre-approved for. This can frustrate many buyers who fall in love with a home, but do not have the cash to cover the difference between the seller's asking price and the appraisal.
I remember being on pins and needles during the appraisal process for my current home, but thankfully the home (after renovations) appraised for the home value + the upgrades, so I was able to get the money I needed to renovate.

7. GET (AND ATTEND!) AN INSPECTION

Since you pay an inspector to do a walk-thru of the home and they prepare a written report of the findings, I've known many homeowner friends who skipped the inspection. No! Bad! Wrong! Completely wrong.
The inspection is for you. In addition to finding out if anything is wrong with the home, this is your chance to learn where the breaker box is, the water main, and all appropriate shut off valves. Plus, having the potential buyer there guarantees a more thorough inspection.(People behave differently when they're being watched- it is proven.)
  • Find a qualified inspector through friends (or Angie's List, like I did)
  • Ask to see an example of the final report before you hire someone. You want it to be THOROUGH with pages (15+) of documentation and photos.
  • Once you get a report with any potential damages, get estimates for the fixes. It will be up to the seller to either fix them or provide a credit at closing.

8. GET YOUR DOCUMENTS TOGETHER

One of my friends who had purchased a home before I did remarked how ridiculous the loan underwriting process is, and how many hoops it seemed they had to jump through before they could close.
That won't be an issue for me, I arrogantly thought at the time, I'm a hyper-organized, type-A personality. I have impeccable records.
And even though, yes, I am organized, it was still a pain in the butt. Here are a few of the “standard” documents you will be asked for during the underwriting process.
  • Check stubs (usually for the past 30 days.
  • W2's for the last two years.
  • Any additional proof of income you may have like your stock portfolio, alimony/child support whatever.
  • Bank statements, usually about three months worth.
  • A letter stating your employment and rental history for the past two years.
  • A home buyers training seminar certificate. 
  • Tax returns and the transcripts which have to be ordered from the IRS.
  • Copies of all of my rent checks to my current landlord.
And if you have a side hustle, or freelance or work for yourself….
  • Be prepared to show copies of checks from clients in addition to your tax returns (I printed mine off of my banks website.)
  • Three months of paypal statements if you earn money online.
If you are planning to buy a home and don't know where these are, I suggest you locate them immediately.

9. STAY ORGANIZED

I was able to access my files quickly and turn them over to him within a matter of hours (if not minutes) whenever my mortgage broker emailed and asked for them.  Not that this sped up the processing of my loan or anything (sorry…still bitter….) but it did save me a lot of hassle and headache because I didn't have to worry or search for a specific document.
  • Get digital. Now. I know this can be difficult for some of you to let go of, I'm a “keep a hard copy for my records” kinda gal too, but when your mortgage company is asking your for this stuff, it is way easier to point, click, and email over a PDF than to scan the document.
  • If you are thinking about purchasing a home in the next 6-12 months, go ahead and thin out your files. I cut down on my files just by scanning and digitizing my pay stubs for the past two years.
  • Create a “master list” for all your accounts and passwords.
  • Once you've been pre-approved and are under contract on a house KEEP A COPY of everything the bank sends you via email or snail mail. Especially if you are working with a large bank, you never know what might go missing that could hold up the processing of your loan.

10. FAMILIARIZE YOURSELF WITH MURPHY'S LAW

Murphy's Law: Anything that can go wrong, will go wrong. 
While I'm saying this a little tongue-in-cheek, I've never known anyone who had a 100% smooth home buying process. There are simply too many variables (money, two sets of people, real estate agents, the bank) to ensure it will be absolutely perfect. Using the tips above, doing your homework and not taking short cuts will help ease the process, but try and remember that bumps in the road are expected too.
Buying a home is stressful, but so, so worth it. Stay organized. Stay cool. And when things aren't going your way, just remember why you wanted to buy a home in the first place.
www.affordahouse.net



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