Buying a House? Do Your Homework!

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A house is one of the most exciting purchases you will ever make. That’s why it’s important to do it right. Whether you’ve hired a Realtor or have decided to go it alone, do your homework before signing on the dotted line.

Anyone can buy a house, even a teenager if they have the money, but if you ask the right questions and do some research, you could potentially save yourself years of trouble, both financially and emotionally.

Create a Budget
Assuming you have a budget for life’s everyday expenses such as utilities, cable and Internet, you need to create another one to include the potential costs of homeownership: mortgage payment (principal and interest), maintenance and repairs, property insurance and property taxes.

Buying a house requires a large amount of cash up front to cover closing costs and a down payment, which ranges from 3 percent for a government loan from the Federal Housing Administration to 20 percent for a conventional loan. That’s a lot of cash. Be sure you can handle the outlay.

Moreover, you need to have enough cash in reserve for emergencies, such as an accident or job loss. And don’t forget the deposits required to set up various accounts and utilities. Take note that when you’re buying a condo or town home, it’s necessary to factor in the homeowners association fees and any special assessments.

If you’re young, you may not mind if your house is a fixer-upper. And if credit is an issue, that may be what you can afford. But keep in mind that repairs and home improvements still require money, so prioritize your projects within your budget.
Consider making a commitment to live in your new house for at least five years. Most of your early mortgage payments will be applied to the interest portion of the payment anyway, so not much equity will build. Why not make your house work for you, instead of the lender?

Find your House
It’s a good idea to get pre-approved by a lender to determine how much house you can afford, which, in turn, will point you in the right direction. Now you can begin the process, with a Realtor or on your own.

If you are single, it may not make sense to buy a five-bedroom house with a pool, but don’t ignore the possibility that you may fall in love, get married and have a family, and be stuck in a down market trying to upgrade to a larger house! If you’re an animal lover, a condo or a townhouse may not make too much sense.

Once you find your dream home in the perfect neighborhood, on the perfect street and preferably close to your job, your due diligence begins.

Study the house at different times during the day. Drive by in the morning; swing by around mid-afternoon and at night. This will give you impressions to consider. Is there a dog barking incessantly when a car drives by? Do you hear loud music next door to the house? Is the street too busy for your taste?

Inquire about the neighbors, especially if you have children. Will there be any children to play with nearby?

If you feel comfortable with your surroundings, move to the next phase.

Making the Offer
Your offer and contract should let the seller know that you are serious, but also firm about the condition of the house.

Hire a home inspector to do a thorough inspection of the house. Items will include electrical, plumbing, air conditioning, heating, appliances, structural integrity, safety issues, windows, roof, basement, drainage and other items. Stand firm in your negotiations regarding issues your inspector finds. The seller knows unsatisfactory items will need to be addressed, whether it’s with you or with another buyer. Most lenders will require a “systems clear” before disbursing your loan.

Remember to get a termite inspection as well. Typically, the seller will furnish the inspection, and may also transfer their current bond to you upon the sale.

Your appraisal will come next. It’s usually paid for by the buyer at closing, and is performed after the inspection to give you and your lender the satisfaction that your house is worth the money you are ready to pay. If the appraisal comes back with a lower figure than you have offered, you have some choices. Walk away from the deal, or ask the seller to come down on their price. Some lenders will give you the privilege of going ahead with the sale, but keep in mind that you may not be able to insure the house for the total amount you pay.

Chances are, if you have gotten this far, your new house is close to reality and will close soon. Remember to celebrate! Buying a house remains an American ideal. It’s certainly worth a pat on your back when you cross your new threshold. HLM

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