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Tips for Home Buyers

Buying a home is not only a major financial decision, but it is also a life changing decision. For many first time home buyers, understanding the entire home buying process can be overwhelming and quite stressful. However, you can take the stress out of your home buying experience by knowing these eight simple things:

1. Agents Aren't Just for Sellers
2. Curb Spending Habits to Ensure You Qualify for Home Ownership
3. The Importance of Mortgage Pre-Approval and Finding a Legitimate Lender
4. Avoid Buying from the Wrong Seller
5. Lay the Groundwork, Build a Plan, and Get Moving
6. Understanding Market Trends
7. What you See is not Always what you Get
8. Averting the Financial Stress of Buying a Home

If you take this information and empower yourself, the home buying process can be seamless and effortless. After all, you are not just buying a house, you are buying a home.

Agents Aren't Just for Sellers

When selling a home it is natural to assume you will require the help of a real estate agent, but this is not always the case when buying a new home. Why is that? Does it not make sense to enlist the advice and experience of someone who makes it their business to know the current real estate market?

A buyer's agent has the inside track when it comes to finding properties that are available for sale. Agents have access to listing services that are not available to the general public. They are also actively looking for other opportunities which can include homes that are for sale by the owner or even potential home sellers who are simply contemplating listing their properties.

When selecting a buyer's agent it is important to find one who will work for you and not the seller. An agent who is experienced and dedicated to you, the buyer, will work harder to show you more potential properties, keep you informed and answer your questions during the process, negotiate on your behalf, and concentrate on getting you the lowest asking price possible. Another benefit to hiring a buyer's agent is that during price negotiations, your agent is restricted from telling the seller any information about your other property interests.

Curb Spending Habits to Ensure You Qualify for Home Ownership

The deciding factor that determines whether or not most people qualify for home ownership is their financial situation. For this reason, it is a good idea to get mortgage pre-approval before you start home shopping. However, it is also important to remember that mortgage pre-approval is subject to a final evaluation, so you should not do anything to drastically change your financial situation before your purchase is final.

This means that making any major credit purchases while in the process of buying a new home or while thinking about buying, is greatly discouraged because making extra credit payments each month could hinder your ability to borrow sufficient funds or you might simply qualify for less of a mortgage than you originally thought.

So if you think spending money on a vacation or a new vehicle will not affect your home buying ability, then think again. As a general rule, every $100 paid per month to credit could cost you approximately $10,000 in home eligibility. For example, a monthly vehicle payment of $400 could mean you qualify for $40,000 less in a mortgage than you would have if you did not purchase the vehicle.

A simple rule to remember is to curb your spending habits until after closing. This includes both credit purchases and purchases made with savings. Why risk not getting a mortgage for purchases that can be made after you are in your new home?

The Importance of Mortgage Pre-Approval and Finding a Legitimate Lender

In the past, potential home buyers would often do their house shopping before they secured their financing. This method of putting the "cart before the horse" is not very effective in today's mortgage market because you are potentially setting yourself up for disappointment if you cannot actually afford to buy the dream home you have selected. So, why not avoid the disappointment by simply getting pre-approved for a mortgage before you start home shopping?

Most lenders can pre-qualify you for a mortgage over the phone or even online. The lender will ask basic questions about your financial history and income situation and then estimate how much you will be given for a mortgage. However, it is important to remember that getting pre-qualified is not the same as being pre-approved.

For example, a pre-qualified letter is simply an estimate which gives you a "ball park" figure of what a lender will give you for a mortgage. An application is not completed and financial information is not verified so there is still no guarantee on the amount you can borrow.

Being pre-approved means you have actually applied for a mortgage by filling out an application, you have received a credit report, and you have verified your income situation. Upon pre-approval you will know exactly how much you can spend on your new home. You also gain more credibility with sellers if you are pre-approved because both of you know exactly how much you can afford to spend on your dream home.

So taking the time to get pre-approved with a legitimate lender (a bank, savings and loan, a mortgage broker, etc.) before you start home shopping will make your home buying experience less stressful and more effective. Just ensure that you do find a legitimate lender and try to avoid those who seem disorganized and informal. If a lender cannot provide the right information that is relevant to the current mortgage market, simply look for another reputable lender.

Avoid Buying from the Wrong Seller

When buying a home it is natural to seek the best price possible which usually means getting the lowest price. However, most sellers are looking to make a profit when selling a property so asking the right questions is vital to you getting a good deal.

If you ask the seller why he or she is selling, it will give you insight and help you get the price you want. For example, a seller might be highly motivated to sell due to time restraints, relocation issues, or other financial pressures. He or she may have already purchased a new home and the possession date is fast approaching. This could mean the seller must make the sale and he or she will be more willing to sell for less than the asking price or even for less than the house is worth. Highly motivated sellers give a definite advantage to you, the buyer.

Asking the right questions will also raise warning signs and alert you to certain sellers that you should avoid. Not every seller is as genuine as they appear to be, so be cautious and consider the following:

• The property has liens that the seller is unable to clear
• The seller does not own the property in its entirety
• The seller gives excuses and stalls the home inspection and appraisal
• The possession date is constantly being pushed back
• The seller does not have a new property or living situation lined up
• There is no such thing as a perfect seller, but knowing a few of these tips will help you find a seller who is decent to deal with and who is legitimate.
• Lay the Groundwork, Build a Plan, and Get Ready to Move

Most people do their homework when making a major purchase. For example, when looking to buy a new vehicle, people tend to shop around, compare prices, decide on features and color, practice their negotiation skills, and set the plan in motion. If you are prepared, the buying process can be effortless. So, why not apply the same strategy to buying a home, especially when this purchase could be the largest personal investment you make in your life time?

After you decide to purchase a home, it is important to envision every step involved and estimate what you need to successfully make the purchase happen. However, before you can build a plan, you should ask yourself the following questions:

• How much can I afford to pay for a home? (See the note below)
• How much do I have for a down payment?
• How much will I need for a down payment?
• What type of home do I want? (E.g. condo, town home, house, newly constructed, etc.)
• What do I need and want in a home? (e.g. # of bedrooms, # of bathrooms, garage, etc.)
• Where do I want to live? What is the best location for my living situation? (E.g. family, work, schools, etc.)
• What amenities are important to me in a community? (E.g. recreation center, shopping, parks, public transit, etc.)

Note: If you do not know how much you can afford to spend on a new home, consult a lender and get pre-approved. The lender will tell you exactly how much you can borrow and at what rate, so you can look for homes within your price range. You will also be able to calculate your monthly repayment and know what you require for a down payment. Being pre-approved will help alleviate some of the stress associated with buying a new home and you can concentrate on the fun and excitement of finding your dream home.

Understanding Market Trends

The real estate market is not static, so understanding the market trends will help you decide the best time for you to buy. In a normal market, there is a higher than average number of properties listed and an average number of people looking to purchase. This type of market does not necessarily favor either side of the real estate transaction which means there is no definite advantage for the buyer or the seller. A normal market is essentially a neutral market. Sellers may have fewer offers in this type of market, but it does not necessarily mean they are motivated to sell. So, as a buyer, you need to be prepared and understand that your chance to negotiate is likely, but you might be required to work for it.

When the market becomes more competitive, it becomes beneficial to the seller. A competitive market is considered to be a hot market because homes can sell so quickly that they do not even make it to the listings. Sellers usually get multiple offers on their properties and can make large profits when buyers start offering more than the asking price. As a buyer in a hot market, it is important to remain in control and to be prepared because when a price battle occurs, you do not want to find yourself trying to pay more than the lender will give you.

When the market slows down and houses seem to be listed for long periods of time, the prices can drop dramatically. This is considered to be a cold market and can be unfavorable to the seller because buyers have time to shop around and make offers well below the asking price. Sellers generally accept these lower offers because there is no other interest in the property. However, as a buyer, do not try to exploit this market by offering unrealistic prices because you may lose out on your dream home.

What you See is not Always what you Get

When making a major financial decision to purchase a new or existing home, it is important to protect your investment. "Buyer Beware" is also a good motto to remember because what you see is not always what you get, especially when it comes to homes. As a buyer, you are entitled to have an expert inspect the property so you know exactly what you are buying. Do not skip the home inspection.

Ensure that you have a professional organization conduct the inspection. This should be detailed and presented in written form as a contingency when you make an offer. It is also a good idea to accompany the inspector during the walk through so you can ask questions and learn from his or her candid remarks and comments while at the property. This is your best chance to get an honest and unbiased opinion of the property. The inspector will also provide a written assessment as to the condition of the property for your review. If you do not approve the report, you do not have to buy as long as you specified that in your offer letter. Most real estate contracts automatically provide an inspection contingency.

Know What you Need from a Mortgage

Knowing what you need from a mortgage is as important as knowing what you want from a home. If you know exactly what your needs are, you will be more likely to find the right mortgage for your situation. While many lenders base their decisions to loan money on financial qualifications, there are still options available for almost every type of borrower.

Before consulting a mortgage lender, have an idea of what you can afford to spend on monthly repayments. If you are unsure of your own finances and require some professional advice, you can consult a mortgage broker. A mortgage broker will help you determine a budget and what you can afford to spend on a new home.

It is a good idea to get pre-approved for a mortgage before you begin home shopping. You can research the different types of mortgages available or have a mortgage broker do this for you. If you choose to do the research yourself, consider the following:

• What is the market trend (hot, normal, cold)?
• Are interest rates rising or falling?
• What type of mortgage do you want?
• What are your long term goals for property ownership?