Tips for Buyers
ADVICE FOR FIRST-TIME BUYERS
Meet with a mortgage broker and find out how much you can afford to pay for a home.
While knowing how much you can afford is the first step, sellers will be much more receptive to potential buyers who have bee pre-approved. You’ll also avoid being disappointed when going after homes that are out of your price range. With pre-approval, the buyer actually applies for a mortgage and receives a commitment in writing from a lender. This way, assuming the home you’re interested in is at or under the amount you are pre-qualified for, the seller knows immediately that you are a serious buyer for that property. Costs for pre-approval are generally nominal and lenders will usually permit you to pay them when you close your loan.
List of Needs and Wants
Make two lists. The first should include items you must have (i.e., the number of bedrooms, a one-story house if accessibility is a factor, etc.) The second list are the amenities you would like to have but that are not absolutely necessary (pool, gameroom, etc.). Realistically for first-time buyers, you probably will not get everything on your wish list, but it will keep you on track for what you are looking for.
Representation by a Professional
Consider hiring your own real estate agent, one who is working for you, the buyer, not the seller.
Focus and Organization
In a convenient location, keep handy the items that will assist you in maximizing your home search efforts. Such items may include:
- Detailed maps highlighting your areas of interest.
- A file of the properties that your agents have shown you, along with personal picks.
- Paper and pen for notes as you search.
- Location: Is the property attractive base on school district, crime rate, proximity to positive or negative features of the area?
Visualize the Property Empty
Rather than looking at items in a room or paint color, consider things such as the layout of the floor plan, or if there is enough light.
When considering a home, take your heart out of the equation—think with your head. Does this home really meet your needs? There are many houses on the market, so don’t make a hasty decision that you will regret later.
A few extra dollars well spent now may save you big expenses in the long run. Do your due diligence such as:
- Include mortgage contingencies in your written offer.
- Have the property inspected by a professional inspector.
- Request a second walk-through to take place within 24 hours of closing. Check to see that no changes have been made that were not agreed on.
TYPES OF MORTGAGES
Fortunately for buyers, there are a variety of mortgages to choose from. It is in your best interest to investigate each of them to determine which is the best for your situation. You probably won’t qualify for all of them. In fact, you may only qualify for one. However, it you qualify for more than one, you may save yourself money in the long run if you do your due diligence.
Fixed Rate Mortgages
Consider a fixed rate mortgage if either of the following describes you:
- You plan on living in your new home for many years.
- You are not a risk-taker and prefer the stability of a set monthly payment.
Once your loan amount and interest rate are calculated and locked in, a fixed-rate mortgage will guarantee that you will have the same payment over the life of the loan. Making extra payments to principal will allow you to pay your loan off sooner. Ask Barbara Baker the advantages and disadvantages of the varying lengths and terms of fixed-rate mortgages.
Adjustable-Rate Mortgages (ARMs)
If you are more comfortable in taking a risk with you rmoney or if interest rates are very high at the time you take out your loan, an adjustable-rate mortgage may be the solution for you. You may also choose this type of loan if your planned ownership of the property is short-term or if you expect your income to increase to cover any potential rise in the interest rate.
Generally, the interest rate when you take out your loan will be lower than a fixed-rate mortgage. Please note that this is true initially, not necessarily long-term.
Since an ARM rate rises and falls depending on the prevailig interest rate, your mortgage payment will rise and fall accordingly. If your income is not sufficient to cover the highest possible payments, then this option is not for you. On the positive side, the lower initial payments will allow you to qualify for a larger loan than if you choose a fixed-rate. The downside is that your payments will increase if/when the rates go up.
If neither the fixed-rate or the adjustable-rate mortgage seems like the best option, perhaps the convertible ARM will be right for you. This alternative combines the initial advantage of an ARM with a fixed rate after a predetermined number of years. Obviously, this type of mortgage has more advantages when the initial interest rate is low and the future rate is not guaranteed.
Another mortgage option available to some people is a government loan, providing that you meet the qualifications for these loans.
- FHA Loans — The Federal Housing Association offers loans to lower-income Americans. Look for the phrase “FHA approved” when looking at ads for you home.
- VA Loans — Veterans may qualify for a loan from the Veterans Administration. There is a limit on the amount you can borrow, so this option works best for those buying a lower priced home.