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Tip #2: Make A Plan And Get Pre-Qualified
Every important decision needs to be clearly
thought out. Developing a home buying plan can help you focus on
the important factors and organize the entire process. You may even
want to use a binder with sections on house hunting, home financing,
service providers, etc. Loan pre-qualifying helps you determine the
home price you can afford and presents you as a genuine prospect to
the seller. A lender typically uses the 28% formula (your monthly
mortgage can't exceed 28% of your monthly income) in approving your
loan. Planning your actions and getting pre-qualified will keep
you out of the panic mode and allow you to take advantage of opportunities.
A thorough plan will save both time and money!
Tip #3: Value, Value, Value
The days of 10-30% annual appreciation have
passed. Home buyers in the 1970's benefited tremendously from what
seemed like ever appreciating home prices. Nowadays, you're looking
at slow growth while guarding against the possibilities of falling prices,
skyrocketing ARM rates and corporate layoffs that can dramatically affect
your home values. The classic rule of buying the worst house in the
best neighborhood still applies. If you buy with an eye towards improvement,
you can customize the home to fit your needs. The saying, "make money
buying a home, not selling one," should keep you focused on the long-term
importance of the purchasing price.
Tip #4: Create A Top 10 List of Amenities
When shopping for a home, list the features
(fireplace, fenced-in yard, new appliances, etc.) that are most important
to you in deciding on which home to buy. Establishing "your criteria"
early on will save time shopping for inappropriate homes and may keep
you from buying a home on a whim -- for example, because of a circular
stairwell -- that doesn't meet your fundamental requirements. As detailed
in Tip #3, your top reason for buying a home should be the value you
are getting. Some of your top 10 amenities should logically be sacrificed
if an incredible value is available.
Tip #5: Fixed vs. Adjustable Rate Mortgages
Which type of loan fits your particular needs?
If this will be your first home or a "transitional home" -- one you
plan to own for a short time, an ARM may be the best type of loan. If
it's going to be your dream home or one you plan to raise a family in,
then you may want the stability of a fixed rate mortgage. If you choose
an ARM, the index should be based on the Cost of Funds Index if rates
are increasing, and Treasury Bills if they are decreasing. The COFI's
are less volatile over time than T-Bills; make sure the teaser rate
is understood and what the real rate would be.
Whichever loan you choose, make sure that you
scrutinize all the closing costs. If you are required to have a
mortgage escrow account and private mortgage insurance, make sure you
understand the terms and cancellation procedures. Also, make sure there
are no prepayment penalties so that you can utilize an accelerated mortgage
plan. A good mortgage reduction plan can save you tens of thousands
in interest costs, and shorten your loan term, with only small extra
principal payments. If you experience negative changes in your job,
health, or marital status, you can revert to the standard payments in
your mortgage contract.
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Tip #6: Sign A Contract That Protects
You
Make sure that the contract you put on a house
allows you to arrange financing, inspect the home and negotiate any
problems that you uncover. Ensuring that the contract you sign will
minimize potential legal battles will let you swim in your new pool
with your family and neighbors instead of with the sharks.
Tip #7: Put Yourself In The Seller's Shoes
You are about to make one of the most important
decisions that will affect both your life and the life of the seller.
If you take time to understand the reasons the seller bought the
home, their reasons for selling, and the home improvements they have
or have not made, you'll be in a better position to evaluate the home
and negotiate a better deal. In the end, the home buying process
excludes the professionals and comes down to the individuals buying
and selling the home. A closer look at the seller may help you in deciding
whether and for how much to buy a particular home.
Tip #8: Develop A Mortgage Shopping Chart
One of the biggest decisions to make before putting
a contract on a home is how to finance the purchase. There are 10,000
lenders competing for your mortgage business. The days of simply walking
into the community bank and negotiating with the loan department manager
are over. Today, you can apply for a loan over the Internet or even
use a mortgage broker to shop for your loan with hundreds of lenders.
When choosing a lender, you want to avoid apples to oranges contrasts
by comparing fixed rates to fixed rates, not fixed to ARM's. Create
a chart that lists different types of loans, fees, and at least five
mortgage providers (including a mortgage broker).
Tip #9: Get A Quality Home Inspection
Although it is hard to believe, more people pay
for inspections before buying used cars than when making the biggest
investment of their lives -- their homes. Paying for a qualified
home inspection before you buy a home isn't just spending "a little
extra" for peace of mind; it's absolutely essential for anyone who doesn't
want to spend thousands of dollars for repairs.
Tip#10: Peace
of Mind: Home Protection Plans
To protect both yourself as a buyer, and well
as the seller, it is a good idea to purchase a home protection plan.
What exactly is it? A home warranty, or home protection
plan, is a service contract, normally for one year, which protects
homeowners against the cost of unexpected repairs or replacement on
their major systems and appliances that break down due to normal wear
and tear. A negotiable contract between the buyers and sellers
which do not overlap or replace homeowner's insurance policy, this type
of warranty can save the new homeowner lots of headaches, as well as
put seller's fears to rest. The warranty covers mechanical breakdowns,
while insurance typically repairs the related damage, for example: if
a hot water heater burst and destroyed a wall in your home, the warranty
would repair the water heater and your insurance would pay to fix the
wall.
Information provided
by The American Homeowners Association, Copyright© 2002
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