When you are thinking of buying a home, you need to do more than fall in love with the kitchen and see if your furniture will fit. There are lots of reasons to buy rather than rent, but it is not for everyone.
- Make sure your credit is good
Nothing will de-rail getting into your dream home like have a low credit score. Find out before you start just where you stand. It could stop you cold. A low score will make your payments higher for sure and that will add up to big money over time. If you have issues, get them taken care of before you begin. Start early…months before you are ready to begin.
- Align your wants with your ability
Everyone would like to live in the palace on the hill. The phrase is Champagne taste and beer budget. Make sure you are willing to buy what you can afford. There are wonderful houses in every price range. One of them will work for you. Your price range will generally be 2½ times your annual income, depending upon the current interest rate. Talk it over frankly with your lender; then share it with your Realtor right up front. It is heartbreaking and time consuming to keep looking at home you cannot afford, hoping someone will be desperate enough to sell that a miracle will happen. Miracles do happen, but seldom in real estate.
- Make sure you are staying long enough
If you are going to be moving in a year or so, then buying may not be in your financial interest. When the prices of homes move up or down, the length of your stay becomes important. It will cost you around 10-15% of the total value of the buy/sell to get in then out of your home. Compare that to the appreciation (depreciation) rate in the area. That will tell you how long you need to stay to break even. (Before tax credits and other factors.)
- Buy schools and location, not the house
You may not have children in school; you may not much care about street noise; An apartment building next door may be fine with you. However, eventually you will want to sell and those thing will be just the things that will turn your buyers away. A really ratty, lurid purple house in a great location is a better buy than the other way around. You can repair and repaint, but you cannot move the house.
- Get a professional inspection
California real estate law requires a seller to disclose everything they know about. You might be surprised how little they might know. Hire your own inspector. You might want to refer to the inspection the seller provides, but don’t rely on it. Houses all have issues. They will develop issues the very day you close escrow. Buying a house with issues is not the problem, buying one where the issues are a surprise is a mistake.
- Look into non-standard lending
You may not have the standard 20% down payment. That doesn’t mean you cannot buy a home. There are many lenders including public lenders prepared to help you buy a home. Look into them. There are loans available with as little as 3% down. Another reason to be sure your credit is sterling.
- Pay attention to the loan you’re offered
There are all kinds a strange loans on the market. Some of them have been partly responsible for the collapse of housing markets. Make sure that you can afford any increases in interest rate, balloon payments. Check to see if you can trade “upfront points” for lower interest rate. If you are going to be in the home for a long time, it might make sense. Points for rate are calculated on the average turn-over. If you beat the average, it might work for you.
- Get Pre-Approved
Stories abound about people who fall in love with just the right house and because they can’t present an offer with pre-approved loan, they lose it to another buyer. Take the step first. It might be tedious, but it will make your offer stand out from the others. It will also show you EXACTLY how much house you can afford and keep you looking at homes that will work for you.
- Know the market you are buying into
Your finances will determine your price range and you will need to decide where to spend it. You can get a tiny condo in Beverly Hills for the same price as a big house in another area. You will need to understand what your choices are and which ones are best for you and your family. It is time consuming, but armed with a list of properties in your price range (both listed and recently sold) will allow you to really know what market is your market.
- Get a REALLY good Realtor®
All the people who carry a California real estate license are not equal. Some work part time and others are really specialists in the areas they work. Get an expert. Someone who will listen to you, understand your special needs and work diligently on your behalf. Don’t be shy about asking how long, exactly have you been a Realtor?