Thinking about buying a house? You’ll need to prepare and arm yourself with the facts. Real estate experts advise prospective buyers to avoid large purchases, check their credit scores, and get their finances in order before they start looking. Preparation is the key to success. You could find yourself in a competitive seller’s market, and you’ll want to be ready when you find the right house.
Below are some little-known facts about home buying to keep in mind as you embark on one of the largest financial transactions of your life.
- The seller pays the brokers’ commissions, not the buyer.
Buyers aren’t saving money by going into a major financial transaction without the representation of an experienced agent. Foregoing all the advice and help you get with an agent will likely cost you money.
- Sales contract provisions are negotiable.
There’s always room for negotiation. The parties in a sales transaction negotiate price, fees, inspections, deadlines, repairs, contingencies, conditions, and personal property that stays with the house. An experienced real estate agent will advise clients on the best ways to get what they want.
- Buyers can be on the hook for previous owners’ mistakes.
Always get title insurance. If a tax entity or contractor put a lien on the house due to a previous owner’s unpaid debt, the new owner could be responsible for it. Or an undisclosed heir could assert an ownership claim. The title insurance company searches public records for these problems. If a title problem pops up later, the insurance company will cover your losses.
- Lenders may approve loans for more than you can really afford.
It’s important to know what you can realistically afford. Things change, people change jobs, start new businesses, have kids, and grapple with medical bills. Your income may be high enough and your debt low enough now, but that might not be the case in the future. Lenders only care about whether borrowers can afford to pay the mortgage payments and property maintenance with stable income and current expenses. Lenders can’t predict the future and don’t know what you have planned.
- The cost is more than just the purchase price.
When determining what’s in your budget, remember that the cost of homeownership is more than just the sales price. Be prepared for closings costs between 2 and 5% of the sales price. Also, once the house is yours, there will be new furnishings, homeowner association fees, insurance, taxes, improvements, and repairs. Keep emergency reserves for 6 months of new expenses like mortgage payments.
- A new home inspection is a must.
Foregoing the home inspection could cost buyers lots of money later. You wouldn’t want to buy a $300,000 house and later discover a huge defect that will cost thousands of dollars to fix. A home inspection contingency makes a sales contract conditional upon the outcome of the home inspection report. Buyers can purchase the right to cancel the contract if the home inspector discovers serious problems.
- It’s a bad idea to buy a house just as an investment.
Don’t get too enamored with the idea of your house as an investment. Housing prices have only grown 35% over the last 125 years, accounting for inflation. And in the last 60 years, housing prices have kept pace with inflation. Buying real estate is not a guaranteed moneymaker. There’s just as much guessing involved as with stocks. Don’t count on your house to make money for you.
- Buyers should get pre-approved for a loan.
You submit your financial information and the lender calculates the mortgage payments you can afford and how much they’ll lend you. This gives you a price range to narrow your home search. It also makes your offer more attractive to sellers and shows them you’re serious and able to buy now.
- Buyers should make their best offer first and fast when they’ve found the right house.
If you’ve done your homework, have a pre-approval letter, and your finances are in order, be prepared to make a strong offer first. Your agent will analyze the local market and advise you what to offer. If the house is not overpriced, many agents recommend a listing price or more offer, especially in a seller’s market.
- Homeownership is not necessarily the American Dream.
Sure, owning your own home sounds great, but those daydreams rarely include massive water leaks, mold infestations, and an expensive roof repair. Homeownership is a big responsibility in time and money. If your financial circumstances change or you want to move out of state, it can be difficult and expensive to move. While you’re gaining some things, you’re losing others like mobility.
Choosing a home can be an emotional decision. But emotions can be fleeting; you’ll be living with this big financial transaction for years. If you go into the homebuying process informed, prepared, and clear eyed, you’re likely to make smart decisions and get the house you love for a price you can afford.
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