If you’ve run out of space to set down your coffee mug, you may have outgrown your home.
Before you move from looking at website photo galleries to attending actual open houses, there are a few things to get in order. Here’s how to make 2018 the year you buy your dream home.
HOW MUCH DREAM HOME CAN I AFFORD?
Savvy home buyers take a good, hard look at how much mortgage they can truly afford — which is often different than how much you qualify for. Your dream home isn’t that dreamy if you end up “house poor,” that is, having a mortgage payment so high that you can’t furnish that house, let alone take the occasional vacation.
Talk to a lender before you start shopping. Have them run some numbers so you have a clear picture of how much your monthly payment will be, given your down payment. Make sure your lender factors in taxes, insurance and all the fees you might not have thought of beyond the purchase price.
WHAT KIND OF MORTGAGE SHOULD I GET?
While you’re meeting with your mortgage professional, talk through all the different options for your loan to find one that’s customized to your particular scenario. For example, monthly payments for a fixed-rate loan will stay the same until you have paid the loan off. If you’re staying in your home for a long time and don’t plan to refinance, a fixed-rate loan can be a good option; the most popular lengths are 15 and 30 years.
You may be able to get a lower rate and lower initial payment with an adjustable-rate mortgage (ARM). However, your payments could increase if interest rates go up. ARMs usually have a length of time over which payments won’t change (maybe five or 10 years), then they change after that. ARMs are usually best when you plan to refinance or sell your home prior to the chance of rates adjusting.
Talk to your lender about whether it makes sense to pay mortgage discount points. And it’s a good idea to to get a pre-approval letter, which shows a seller you’re a qualified buyer.
WHAT ADDITIONAL COSTS SHOULD I BUDGET FOR?
Whew! You’ve got your down payment and your first month’s payment. You’re ready to buy your dream home, right? Not so fast. There are a number of out-of-pocket costs that come with house hunting, and we’re not talking about replacing that worn carpeting — although that might eventually be on your list, too!
Between a home inspection, closing costs and mortgage points, you could easily owe thousands of additional dollars at closing.
SHOULD I USE A REAL ESTATE AGENT?
The short answer is yes. Agents work on commission, but guess who pays the commission? The seller! So it’s always wise to have a professional who is negotiating on your behalf, especially since you won’t be paying them out of pocket.
A buyer’s agent who knows the market inside and out can be an invaluable ally in helping you scope out neighborhoods and houses that have things that are important to you. They’ll use their practiced eye to find flaws that might be deal breakers and help you negotiate a reasonable purchase price based on “fair market value.”
WHAT SHOULD I LOOK FOR?
A real estate agent can help you winnow down a long list of “wants” to focus in on “needs,” but it’s a good idea to look at the neighborhood, the condition of the house and how other homes are selling nearby.
Neighborhood is important because you’re buying it along with the house. That means that you’ll want to make sure it’s in a good school district (even if you don’t have kids as this will affect the eventual resale price), as well as whether it has the amenities you want and need such as parks, retail offerings and a manageable commute.
Even if you’re an avid DIY-er, there are some factors of a house that are likely an instant deal breaker, considering the cost to fix them. Don’t fixate on that tacky wallpaper, but rather hone in on big-ticket items such as a sagging roof, a cracked foundation, outdated electrical systems or mold.
Finally, your agent will be able to show you recent sales for comparable homes in the same area to make sure the asking price of the home lines up with current fair market values.
Neighborhood is important because you’re buying it along with the house.