If you are preparing to buy a home or thinking about it in the future, there are a few things you need to consider first. Buying a home doesn’t have to be complicated or draining, but the more you know the better the outcome. This is the first installment in my home buying/selling series based on my experience having purchased a home twice and renting in between! Let’s get started!
FHA vs Conventional
It’s important to understand FHA and Conventional purchasing so you know what to look for when perusing home listings. For instance, if you had a home that was foreclosed on, charged off or otherwise negatively left… you will not be able to finance a home for 3 years with FHA. If you want to go conventional, you will have to wait 7 years. Guess which loan is preferred by sellers? Yep, conventional. For those who buy FHA, it can be thought that you have bad credit and no money. Not true often, but still the thought. The other reason sellers don’t like FHA is because of the strict inspection guidelines. If they find anything, the buyer and seller have to negotiate who will pay for the repairs. Some buyers put a contingency in the purchase agreement that the seller will pay if anything is found.
Don’t let that deter you, just don’t waste time looking at homes that don’t clearly state they accept FHA. There are still very nice homes in that range. If you are a conventional buyer, you are in good shape and there are still programs available for you if you don’t have the full 20% down payment.
If you are a first-time home buyer you are golden, there are a lot of programs for you!
Cash buyer – oh how they love you, negotiate, negotiate, you have the upper hand!
Tip: review your lender’s website to see if there are things they offer that they didn’t mention when you spoke. We did this and found additional lender concessions/programs we could take advantage of. Remember concessions are just ‘deals’ .. money you don’t have to pay because either the lender or the seller will pay or discount them for you.
Consider Location When You Buy a Home
Watch the market, get with an agent who will send you detailed reports on the housing market in your area, not just homes for sale. You can of course always google, but you need to understand what is going on in your area.
Your region, city, state will determine the biggest bang you get for your buck. For instance, I live in Southeast Michigan – the same home in a western suburb can cost $50,000 more than a home in an eastern suburb, both nice areas with comparable amenities. Just depends on where you want to do LIFE…
Looking At Homes
Okay, you will need to get your mind right about this process. You most likely won’t get the first house you fall in love with, so please try not to fall in love with any right away. Be objective, not emotional, in your search. I admit, I fell in love with a couple, but either they didn’t take our deal or they ended up not being the house for us.
Look past the owner’s decorations or lack thereof; be reasonable about what you can live with. At the same time, definitely, do the math on the price you are paying vs. the repairs and/or updates you will have to make. For example: If you find a house worth $200,000, that is listed for $150,000, but you have to make $50,000 – $60,000 repairs, you haven’t gained anything. That said if there are other factors that make it worth it for you, like a work commute or school district, go for it! Sometimes practical can get in the way of your quality of life, so just be reasonable.
Making The Offer
Okay so there are a few schools of thought here and you basically have to make the best decision based on where you are. The best position to be in is one where you don’t have to buy a house right away and can take your time to get a good deal.
When signing the purchase agreement you’ll be asked for a deposit, somewhere between $1,000 and $3,000. This is so the buyer knows you are serious and doesn’t take the house off the market for nothing. IF you decide to back out, you lose it. Yep, it’s gone. So buyer, beware!
In a seller’s market, you are generally paying close to asking price, but you may get some concessions. Concessions mean they pay a percentage of your closing costs. This is negotiated in your offer.
For instance – a house is selling for $175,000. You may offer $173,000 with 4% of closing costs paid (concessions). The seller may counter with $174,000 and 2% closing costs paid. Also, don’t expect the seller to automatically negotiate. Negotiation occurs when there are really good competing deals. If your deal is not as attractive as another, you lose. If the better deal does fall through due to lack of financing or other reason, their agent may reach out later offering you the home.
In a buyer’s market, you win, you can offer more than just a few thousand less than the asking price and get more in closing costs paid.
Your Bank Accounts
As soon as you know you want to buy a home, start then getting your bank accounts in order. Be sure to have money coming in and out of only a couple of accounts.
If you create an account for your home purchase – create a checking and savings, you will have to provide bank statements for both.
You will also have to provide bank statements for any other accounts you transfer money from to those accounts. If you receive a lump sum gift from someone, they will have to write a letter and/or show the deduction from their bank account. Yep, every dollar… so be prepared to have your ducks in a row and account for them.
Inspections and Appraisals
When paying cash you don’t have to do an appraisal, but it is definitely recommended. Also, no matter what, never skip the inspection when buying a home.
The appraisal ($400+/-) will let you know how much the house is worth. The inspection ($300 -$500+ depending on the size of home) lets you know what is wrong with the house. When you receive the inspection, if there are issues with the house that you do not like, and or the owner doesn’t want to negotiate repairs, you can reject the offer and get your deposit back.
Unfortunately, you will have to pay for another inspection and appraisal on your next home… yep about $1,000 gone.
Purchasing Home Insurance
When purchasing home insurance be sure to ask about the true replacement cost of your home. They may have it too high causing your annual rate to be overstated. They may have it too high causing your annual rate to be overstated. Check around with insurers you’ve never heard of. Ask others who they use. Some credit unions and other institutions may offer a deal if you simply have an account with them. You have to dig sometimes to get a good deal for the same coverage and not just go with the well-known companies.
Are you in the market to buy a home soon or considering it next year? How is the market in your area?