How much should I spend on my next home?
Before deciding on the price range of the home you're going to buy, think about how much you want to pay out each month in mortgage payments. Try to save as large a down payment as possible. The mortgage payment will be composed of the mortgage payment, the property taxes (in most cases), and the mortgage insurance. The lender will set a maximum on how much you can borrow. Use the maximum as a starting point to deciding how much you'll borrow. Ask a real estate agent to help you get "pre-qualified" by a lender (to get an estimate of the maximum mortgage amount).
Lenders will be happy to "pre-qualify" you-give you a preliminary limit on the amount they would be willing to lend you. This pre-qualification is not a commitment on the lender's part, but the maximum they provide you with is helpful to the buyer for planning purposes. Once you've set a price range for your new home, give it to the real estate agent during your first visits. Don't be afraid to look at homes that are 15% to 20% over your price range. You will be able to negotiate the price down in many cases.
You will want to save as much of the down payment as possible. The reasons for this are two-fold: first, lenders will not require you to pay for private mortgage insurance if you can come up with a 20% down payment; second, the sooner you pay off your mortgage, the better off you are financially.
How can I find a good real estate agent when buying a home?
If you find that your real estate agent is not doing his or her best to find you the home you want, is not listening to you, or is otherwise not meeting your expectations, don't hesitate to make a change. The real estate agent will cost you money, so make sure you are getting your money's worth. You want an agent who is competent and experienced, and whose way of working is compatible with your own.
To find an agent, look for the following traits.
Is the Agent Full-Time? Is the Agent Experienced? Be sure the agent has been doing the type of work you will need him or her to do for at least a few years.
Does the Agent Listen, and Communicate Clearly? The agent must be able to learn what's important to you in your home purchase, and to tell you what you need to know about a home.
Is the Agent Willing to Negotiate For You? To get the best home for your dollar you'll have to negotiate with the seller on the price. If the agent is not willing to show you houses that are 20% over your price range, or to go to bat for you when negotiating with the seller, you need to find a new agent.
Is the Agent Careful In His or Her Work? You need an agent who will cover all the details that go into buying a home.
Can I save money by buying a home without a real estate agent?
You can shop for and buy a home without an agent, but you'll need to put in a lot of extra time to do the things that agents do: search for properties, schedule appointments to see them, coordinate inspections, and negotiate. Home buyers who already have a property in mind that they want to buy are the best candidates to do the deal without an agent.
How can I negotiate the lowest price when buying a home?
Here are some negotiating tips:
Be willing to walk away from a deal. If you decide you must have a certain house, you have already lost negotiating power. There are other good properties out there.
Learn everything you can about the property before making your offer. For instance, how long has it been on the market? Has the buyer dropped the asking price? Why is the owner selling? The answers to these questions will help you to negotiate.
Know what comparable homes are selling for.
When the seller won't budge on price, try to negotiate something else. For instance, try to get the seller to pay for repairs or improvements you would have done yourself.
- Don't forget the real estate agent's commission. This is negotiable, too.
Should I have the home I want to buy inspected?
The standard home inspector's report will include an evaluation of the condition of the home's heating system, central air conditioning system (temperature permitting), interior plumbing and electrical systems; the roof, attic, and visible insulation; walls, ceilings, floors, windows and doors; the foundation, basement, and visible structure. The purchase of a home is probably the largest single investment you will ever make. You should learn as much as you can about the condition of the property and the need for any major repairs before you buy.
The inspection fee for a typical one-family house varies geographically, as does the cost of housing. Similarly, within a given area, the inspection fee may vary depending upon the size of the house, particular features of the house, its age, and possible additional services, such as septic, well, or radon testing. The knowledge gained from an inspection is well worth the cost. The inspector's qualifications, including his experience, training, and professional affiliations, should be the most important consideration.
Since there are no licensing requirements for home inspectors (except in Texas), make certain that such an association has a set of nationally recognized practice standards and a code of ethics. This provides members with professional inspection guidelines, and prohibits them from engaging in any conflict of interest activities.
What should I watch out for when dealing with home contractors?
Make sure you will get back the cost of the project on the sale of your home. It's often the case that much of the renovation cost cannot be added to the home's price. Make sure the remodeling you're doing is something that the average home buyer wants, such as a modern kitchen, larger closets, and modernized or additional bathrooms. An improvement in electrical wiring is also usually a plus. Further, use neutral colors and designs that fit the rest of your home-so that home buyers will not be turned off.
Do not pay the contractor too much money up front. Before you sign a contract, work out a detailed contract that includes a target date for finishing various portions of the job, and a payment schedule. The contract should detail the costs of materials and labor, so that you know what the contractor's profit will be. The final payment should be due on completion, and it should be a fairly large chunk.
Don't contract with someone who's not bonded, licensed, and insured. To find out whether a contractor is licensed, you can contact either a state licensing agency. Or, you can check with a consumer protection agency to find out whether complaints have been filed against a contractor. To find out about insurance, ask to see a copy of an insurance policy.
Ask for as much detail as possible from the contractor about what the job will entail. You never know what you'll find when you rip open that 30-year-old wall or start replacing that electrical wiring. On a big project, hire an independent engineer to inspect the work. If you don't, you could regret it later if the work has to be redone at your expense because it's not up to code.
How much should I expect to pay in closing costs?
Closing costs can range from 3 percent to 8 percent of the mortgage, or $3,000 to $8,000 on a $100,000 loan. One of the largest closing costs is likely to be the origination fee, which is typically 1 percent of the mortgage. You may also pay from 1 to 3 points, or 1 percent to 3 percent in up-front interest. If you put less than 20 percent down, you will need private mortgage insurance. That will cost you a one-time fee of up to 1 point in addition to monthly payments. Other closing costs include an application fee, appraisal, survey, credit check, title search and insurance, transfer taxes, and homeowners' insurance for one year.
Your lender must send you an estimate of your closing costs shortly after receiving your application. Your realtor, lawyer, or escrow agent will give you the exact amount before closing. If you have only enough cash for a down payment, you can fold closing costs into your mortgage, but you will have to pay a higher interest rate.
Should I buy or rent?
For most people, owning a home makes more sense than renting one. Homeowners build equity over time and reap the benefits of writing off mortgage interest on their taxes. A modest increase in value represents an even greater gain for people who make a typical down payment of 20 percent or less. The higher your income tax bracket, the better your return.
You may want to rent, however, if you can find cheap housing, such as a rent-controlled apartment. If you are young and single, newly divorced, or move often with your job, renting may make more sense. It's tough to recover the costs of buying a home within the first few years. Retirees also may want to sell the family homestead and invest the proceeds. Renting may be a good idea for anyone living in an area where housing prices are falling. Then you can wait until the market bottoms out before you buy.