Develop a wants versus needs list before you buy
Everyone has a picture of an ideal home. This would include all the features you not only need, but have long desired. However, when it comes time to buy a home, the desires cost more. While it’s nice to think about having a beautifully landscaped backyard, or a hot tub, perhaps even some built-in appliances, these are usually considered luxury items, which can add considerably to the price of your home.
That’s why it’s a good idea to develop a needs and wants lists. With this list, begin with items you really need like adequate space, garage, parking spots, number of bedrooms and number of bathrooms. For most people, basic needs should be considered first. After that, you could consider additional desires, if you can manage these benefits financially.
With such a list in your hands, you’re less likely to be caught up in the excitement of the pursuit. You’ll have a good idea of what you want, within you price range, and if you can afford those additional items.
Your financial health - your credit and home affordability
Is now the right time financially for you to buy a home? Would you rate your financial picture as healthy? Is your credit good? While you can always find a lender to lend you money, solid lenders are more skeptical if your credit history is not good. Generally, a couple of minor blemishes on a credit report will not unduly affect your good credit rating and could qualify you for the lowest interest rates. If you have more than a couple of blemishes on your report, lenders may still provide you with a mortgage, but you may have to pay a higher interest rate and fees.
To determine how much home you can afford, the first step is to call a mortgage broker. A mortgage broker will work with you to determine your borrowing capability and find you the best mortgage at the best rates. Check out my Tips and Resources page for mortgage brokers I recommend.
Some say that you should refrain from borrowing as much as you qualify for because it is wiser not to stretch your financial boundaries. The other school of thought says you should stretch to buy as much home as you can afford, because with regular pay raises and increased earning potential, the big payment today will seem like less of a payment tomorrow. This is a decision only you can make. Are you in a position where you expect to make more money soon? Would you rather be conservative and fairly certain that you can make your payment without stretching financially? Make sure that whatever you do, it's within your comfort zone.
Where the money for the transaction will come from - Get approved before you buy.
An approval means that a lender has reviewed your credit history, verified your assets and employment, and has approved your loan before you have found a home to purchase. As long as the home appraises for at least the purchase price, the loan should close.
Getting approved also gives you an advantage over other buyers. Your firm approval makes it easier for you to negotiate on the price of a home, than a person who is not approved or is pre-qualified.
While getting pre-qualified may sound official, it is really just getting an idea of what you can afford. It’s having a person plug in a few numbers that you give them - your monthly income and your monthly debt - and getting an approximate payment calculated. From the payment, the calculator can approximate the house price range that you can afford. No information is verified. Because your assets, income or credit is not verified, a pre-qualification has little value when purchasing a home.
Typically homebuyers will need some money for a down payment and closing costs. Closing costs will typically run to approximately $1,000.00 and includes conveyancing fees (transferring title), legal fees, home inspection, and other miscellaneous costs. You will also need a deposit at the time you make your offer. This is typically between 5 and 10% of the purchase price depending on the value of the property. Your realtor will suggest a deposit, based on the funds you have available. The balance of the funds will come from the mortgage arranged through your mortgage broker.
How long you plan to live in the home
If you purchase a home and get a job transfer or decide to move after only a short time, in the end you may lose money on the sale. The value of your home may not have appreciated enough to cover the costs that you paid to buy the home and the costs that it would take you to sell your home.
The length of time that it will take to cover those costs depends on various economic factors in the area of the home. In Victoria, at this time, we have an approximate 5% appreciation on most properties. In this case, you should plan to stay in your home at least 2 years to cover buying and selling costs. The longer you stay in your home, the more you increase the value through maintenance and renovations. And the more the market increases, the more valuable your house will be.
How long the home will meet your needs
What features do you require in a home to satisfy your lifestyle now? Depending on how long you plan to stay in your home, you'll want to ensure that the home has the amenities that you'll need now, that it fits your current lifestyle and also your future plans.
If you are still unsure if you should buy a home after making these considerations, you may want to consult with an accountant or financial planner to help you assess how a home purchase fits into your overall financial goals.
Learn about the neighborhood.
Often times the house you find may be in a neighborhood that you're not familiar with, which is ok. It just means that you'll have to do a little more research. If you find a house that you like, ask for a list of the neighborhood properties that sold in the last year. How does your home rank? Is it at the top of the price range? If so, it might be hard to resell. Is it average or on the low end? If so, great - as the other home prices go up in value, they will pull your home's value up as well.
Check out the schools - are they sought after? A good school district means your neighborhood will always be valued by families, which is a great reassurance to future purchasers, not to mention the value-added factor if you have school-age children.
Next, contact the police station and obtain crime statistics. Are they acceptable to you? Sometimes, if they won't give them to you, it could be a cause for alarm.
Talk to the neighbors. The more people you talk to, the better sense you will get of who makes up the neighborhood and how they will affect your time spent in it.
Check out the location of the shopping, police and fire stations, schools, and air traffic overhead. These are all things that might affect your property value or quality of your life.
Protect Yourself.
Make sure your REALTOR® provides you with a copy of the documents you will be asked to sign once you find the home that you want to purchase. Read them ahead of time so that you'll understand the questions that you will be asked, the things you need to know, and the decisions you will need to make. Have your REALTOR® clarify any points you don't understand.
Have reasonable expectations.
There is a lot of money at stake. No house is perfect. Understanding and remembering these two statements will help diffuse the negotiation stage, the inspection stage and the closing stage.
Emotions are high for both buyers and sellers. The seller may have loving memories and years of sweat equity in the house. Maybe they are being relocated and don't want to go. Understanding their motivations for selling will help you appreciate their situation and predicament during these emotional times.
There is a lot of money at stake - For all the parties involved. Remember that market value (the value of a home) is the price that a willing buyer and a willing seller can agree to. If you can not agree on a price, ask yourself: Is there something you missed? Are there comparables that support the price that they want? Are there motivations that might factor into the price they are demanding? In the end, does it matter? What is the house worth to you today and what do you think you can reasonably sell it for based on the amount of time you plan to spend in it? Think about the answers to those questions before you make your move.
No house is perfect - Always get an inspection. It might be a few hundred dollars, but it's worth it. It is the inspector's job to find any problems with the house that could cost you thousands to repair down the road. Some inspectors have a tendency to be over-cautious with some of the deficiencies they may find. Get objective opinions that you trust before making a decision on an inspection report. Likewise, if an inspector says a foundation is cracked but its nothing to worry about - get a second opinion. Ask a handyman for an idea of how much repairs will cost and how complicated they are. The home buying process is an emotional, complex and time-consuming process, but it is worth it. Nothing compares to owning your own home in a neighborhood that you chose.
If you’re ready to discuss buying your first home, or your fifth, contact Carol today to get all the answers you need! |