As the events of the last few 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. By getting pre-approved as a buyer, you can save yourself the grief of looking at houses you can't afford. But most of all, rarely will a seller consider an offer from a buyer that doesn't have proof of the buyer's financial ability to buy the home. Doing this before the offer, or with the offer ultimately puts you in a better position to not just 'make an offer', but to make sure it's you who get their offer accepted, 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, and more likely to get your offer accepted over someone who just has a pre-qualification.
Choose your mortgage carefully. Used to be the emphasis when it came to mortgages was on paying them off as soon as possible. Today, the debt the average person will accumulate due to credit cards, student loans, etc. means it’s better to opt for the 30-year mortgage instead of the 15-year. This 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—and given the current real estate market, you should—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. Consider especially sales of similar homes in the last three months. For instance, if homes have recently sold for 5 percent less than the asking price, your opening bid should probably be about 8 to 10 percent lower than what the seller is asking. If the average sale price is more than the asking prices, then, hold on to your hat! Don't worry, though, that has been the norm in a lot of neighborhoods in desirable areas. Just make your first offer your "best offer" and don't get involved in the emotions of an auction or bidding war. If they won't take your best offer, move on to the next house where someone reasonable to work with might be waiting for you.
