What Can I Afford?

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. Sub-primes may be history, but you’ll probably still be shown homes you can’t actually afford. By getting pre-approved as a buyer, you can save yourself the grief of looking at houses you can’t afford. You can also put yourself in a better position to make a serious offer 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. Feel free to contact me for a list of trusted and reputable lenders to help you with this process.

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, especially for first time home buyers. 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 making an offer. Before you make an offer on a home, do some research on the sales trends of similar homes in the neighborhood with a real estate professional. Consider especially sales of similar homes in the last three – six 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. In addition do a thorough visual inspection and leverage any resources you have that can give you their opinion on the condition of the house. Even though you have the option to back out as a buyer if inspections do not go as you have hoped you can lose hundreds, even thousands of dollars in deposits and inspection costs for things that can often be identified before going under contract.

If any of the items above are concerns of your don’t hesitate to ask us about them as they are all standard parts of a real estate transaction.

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