- Personal Finance
Tips For the Potential Homeowner
Practical, Common sense Tips before Home Aquisition
First off I am not a Mortgage lender, Real estate agent or lawyer. I have not gone to school for training in any of these areas only the school of hard knocks which has helped me to gain knowledge in the area of real estate, mortgage and lawyers help, in the process of buying. Some of you, maybe well chaptered and versed pertaining to these issues but mines is hands on. No, I do not flip houses or any of that real estate talk, but just plain old common sense which will help me the next time I want to get my feet wet again and you the reader as well.
Some peoples idea of a dream home maybe the mansion or cottage on the outskirts of town; a penthouse on the tenth floor with a lake front view; the bungalow in the inner city or the nicely, freshly built townhouses lining the city's park; and trailer park homes.
Whatever your preferences are, surely there is a way to obtain your hearts desire. In this section is listed some practical pointers that will keep you focused and on point as you set out on your venture for that Dream House.
- No wishful thinking. Think business minded. There are no genies in a bottle, magicians and magic potions that will help you obtain your Dream Home and keep it. Sometimes our thoughts, bewilders us and leads us away from the reality, am I ready?
- Do you make enough to sustain a huge responsibility of upkeep for your new found home? If you make ten dollars an hour, who are you trying to fool. Cleanse your mind and keep it real. It's a start, but it's only room and board money not mortgage money. (Unless you live in an area where the taxes are super low and you pay no income taxes, then anything is possible.
- Do you have a bank account? If you are not a saver then you are setting yourself up for failure. I believe in mad money too, but in the bank not under your mattress.
- Who will go in on the deal with you if your funds are not sufficient?
- Do you really want co-owners other than a spouse? Co-owners/cosigners have a say so in your investment and a responsibility in the event of default; so be wise as long as it is in writing that the help is a gift or temporary.
- There are some gems out there but with careful planning and saving. I do believe in miracles not magic. Please do your homework. Visit communities that appeal to you. See if communities are in flood zones or high incidences of storm occurrences. Also gang activity and drug trafficking. Be mindful and careful. I only say this because of the high number of foreclosures across the nation.
- Foreclosed homes are options as well for they will be cheaper to negotiate since the former owners or soon to be must get out of the deal to help save what's left of their credit standing.
Potential Home Location
Where you want to live is just as key and as vitally important to Home purchase as the monies that you have to afford what it is that you want. It makes no sense to buy in an area that you would dread coming home to every night just because you want a house.
- Living in the Inner city maybe cheaper to live than outlying suburbia but it is not as peaceful. Granted some inner city areas are hidden gems and have there perks but suburbs are less congested.
Unless you were born with a silver spoon in your mouth, these are items to consider in your search.
If you have small children, take public transportation, depend on one car, etc., then the objective is to go with what is convenient, better for the children and money smart. People do buy homes while they travel on public transportation. I should know because I was one of them.
- Also if you want or need land space for future projects or events then you would consider smaller towns with less homes per acreage and including areas for farming. Even in my advancing years, I prefer land space, yes the kind that needs a drive around lawn mover and land scape that needs professional upkeep. That's just me.
Zoning laws do come into play when you want to do room additions, start a home based business and or farm or grow crops.
- Another suggested idea would be to acquire abandoned homes and properties that would go for a fraction of the cost and build with the intention. The inner city's are filled with distressed homes of individuals who got caught up in the housing crunch of 2004 to 2008 and for some, still to this day.
Understanding the Language of House Buying and Financing
I know for me, when I bought my first home, I just nodded and said okay to jargon that was so very unfamiliar to me. It is so important to learn the language, for you will realize how much bargaining power you possess when you know what you are talking about with a sense of understanding.
Sometimes the language used in reference to Home buying can be confusing, so here is a list of the most commonly used terms and their definitions. Bankrate.com has a list for mortgage commonly used words.
Key Terms Used in the Buying Process (Source - Wikipedia)
- Contract - The Real Estate Contract is the paper instrument that is used to purchase the home/property for sale. It entails all legal prospects of the property. It is the negotiation of the buyer and seller.
- Appraisal - Written report of property's value by a qualified Appraiser.
- Closing Cost - The expenses that result from the home sale transfer, lawyer fees for filing, mortgage documentation and filing cost from the Title Company.
- Down Payment - A Down Payment is the percentage that goes up front towards the purchase of a house, usually anywhere from 5 to 20% of purchase price. It's usually leverage for less interest charged to the home loan and lower monthly mortgage payments. See also credit.com
- Earnest Money - Money from honest means to secure your interest in the process of home acquisition through the contract.
- Mortgage - A loan(money) that a lender or bank gives to help finance the purchase of a house.
Buying oppose to renting
What is your preference, buying or renting?
The Real Estate Contract and Steps to Follow
Now that you have found the home of your dreams and the agent has drawn up the contract and you have did an initial walkthrough, negotiated the terms and asking price of home here is what will follow:
- This legally binding instrument entails the location and details of the home and legalities for the acquisition process. Make sure a lawyer looks at it and explains every detail unless you know something about the law and real estate, but still allow their professional overview before it goes to the lender.
- At this point the house has to be appraised so that it's value matches the going price of home and that it is in good standard and keeping with current laws.
- Home inspection is where home has to be inspected for the current laws for asbesto, flooding and other issues that may declare a house unsafe.
- Inspections and Appraisals must be paid for and information given to agents and potential owner(s) as well as underwriters who gives the deal the green light.
- Homeowners insurance has to be purchased before or at point of sale at closing.
- There is a checklist that goes along with the process so that you will fulfill the requirements for the underwriters who will approve the loan. Lenders know what is required but sometimes there drive is different than yours so be mindful.
- Final walk through before closing.
- This is the final phase before ownership, the Closing where all documents will be signed before execution of property from old owner to new owner.
- Documents are filed with county, state and city of new owners.
The Ideal Mortgage
Now that you have some ideal as to where you may want to live and have worked out some of the kinks and quirks of the initial process, then you can proceed with the financing. Be mindful of the type of financing that you obtain because it can either make you or break you.
Homeowner's taxes or property taxes do go up, as much as you would like to believe they will stay the same for the life of the loan but reality is with each new governmental administrative term that is the likeliness, so cushion yourself for the duration.
Types of funding/ Mortgage Loans
Some of information from ezine articles
- Fixed - rate Mortgage Interest rates that stay the same over the life of the loan.
- Adjustable - rate ARM Mortgage variable rate mortgage usually offers a lower rate of interest at the onset of the loan but later on it rises. Surprise!
- FHA - Federal Housing Administration Loan allows buyers who may not qualify for a loan to qualify with a low down payment. (limited loans)
- VA - Veterans Administrative Loan guarantees loans for Active duty personnel, eligible veterans and surviving spouses which offers competitive rates and low or no down payments. (limited loans)
- Balloon - is usually a loan that may have rates that increase at the remainder of the loan that may start out low.
- Interest - only where borrower pays only the interest on the loan for a fixed term then they pay the initial loan off.
- First time home buyer - has programs suited for first time buyers to either pay the down payment and or closing cost. Usually depends on certain conditions.
- Construction Loans are for those who are having a house built from the ground. It is usually a four phase process.
These loans are usually for someone who is not in a home already as most of these loans if not all require you to live in the house the first year.
Buyer Beware of Predator Lenders
The Truth about Lending
Not everyone is truthful about a topic that has not piqued your interest until now. Read as much information as you can about common lending practices. Here are some more tips to keep in mind when conversing with a lender/ mortgage broker.
- Do not settle for rates that are not fixed just because your credit score is at 600 but less than 700. Usually when a persons credit score is low is because they don't have a lot of positive open trade lines. This only means that you may have slight money issues.
- Especially females who are head of households should always consult with a personal consultant that would give you some insight on common lending practices.
- Get your own lawyer. Make sure his/her practice is real estate law.
- Always remember, you are the one that has to pay the loan back so don't let them make you feel like they are doing you a favor. You're paying for it.
Bankers and Lenders have preyed upon the ignorant and the housing crisis is proof.
HUD Offices Across the U.S.
U.S. Department of Housing
This map is displayed on their site to help answer questions regarding housing and any question that you may have anywhere across the states. They are in all of the states so do not hesitate to reach out to them.
Final Wrap up on House Buying
Shopping for homes and places of interest should be an exciting time for all parties involved in the process. Don't be in a rush for anything that you do, for you will overlook some critical factors that can hurt you in the long run.
Give yourself time and you will be rewarded for your efforts. Don't be coerced into a deal for the lenders benefit, if they don't seal the deal with you, oh well, better safe than sorry for you. Be patient. Wait. Save and wait for that opportune time and you will know it for everything will fall into place. There will be a peace with you when you know you have done the right thing for yourself.