Buying a house is not like buying dish towels off a store rack. It requires putting on your thinking cap. Do you know that some people actually use an agenda planner to jot down monthly tasks along with dollar amounts so that they don’t cause a “bank overrun”? Let’s face it. Buying a house not only saps your mental and physical energies, it also gobbles up wads of cash until you’d have to run to the bank to borrow funds (again).
Buying a House: Monitor the Environment
We’re not referring to the environment per se, because buying a house has nothing to do with greenhouses or acid rain – although you do want a house that meets environmental standards. We’re talking about monitoring the market. Is it a sellers’ market or a buyers’ market?
Why would this affect the decision of buying a house, you might wonder. The answer is simple: buying a home in a competitive market could lead you straight into the situation where supply is scarce and interest rates are unfavorable. You’ve heard the proverbial claim by investment experts that real estate goes through cycles. As in boom and bust. Dirt cheap versus pricey. When demand for housing outpaces supply and builders can’t keep up, this is an opportune time for money lenders to charge an arm and a leg for a mortgage loan.
Real estate was the belle of the ball up until a year or two ago. Millions of apartment dwellers became first time homeowners, interest rates were low, and the construction industry went through a frenetic pace. In the last two years, the helter-skelter seemed to have subsided, and the housing market is beginning to settle into more normal levels. Interest rates are inching up. The next phase will probably have us witness house prices coming down from their exorbitant prices. When, however, is the $64 question because making predictions in real estate is like making predictions in the stock market. Only a fool would spend his time speculating.
Still, it pays to monitor the environment because the economy will dictate, to a certain degree, whether or not your timing for getting into a mortgage is excellent or worth postponing. Next to marriage, mortgages rank up there as anxiety triggers. Many of us have agonized over the question, “are mortgages larger than life”?
In a way they are. But with intelligent planning you avoid the common pitfalls for buying a house, especially if it’s your first time and you’re feeling a tad overwhelmed by the monstrous exercise.
Buying a House: Going Solo or Need Some Hand Holding?
If you’re going to buy a house on your own because you’d rather not pay for the excessive commissions charged by most real estate agents, we take off our hat to you. Just remember to do your homework, check your facts and figures, and double-check them, just in case. Before you take the plunge, learn some real estate lingo because as with any industry, real estate and the people who dabble in it have their own special vocabulary. Some of the terms used in mortgage documents and contractors’ agreements are confusing, especially for first-timers. Take it from us: you’ll go through quite a paper chase as your negotiations go forward.
There are those who would not mind paying commissions provided half the headache associated with buying a house is transferred to an agent. Most people would prefer to put their trust and confidence on someone who’s got the experience and savvy – and connections - in real estate. Those who are buying a house for the second or third time will use an agent again particularly if their initial experience was hassle-free. Many swear by the advantages of using a real estate agent. Agents have an extensive network of contacts, have access to MLS listings and other data bases and foresee potential problems in the house buying process. Experienced agents will know instinctively whether the price being asked for by the seller is realistic or exaggerated, or whether your budget for the type of house you want leaves you enough room to maneuver.
One last thing: there is the belief that real estate agents are out to make money for themselves. While there have been incidents where this has been proven true, most real estate agents take their job seriously. They work hard and actually love what they do. They have to take a course and pass an exam and don’t have weekends and holidays the way ordinary mortals do. Becoming a real estate agent is a combination of brain work, pounding the pavement, grunt work and luck. Sometimes they’re blessed with good clients, sometimes they meet a client from hell.
Buying a House: Think “Mortgage”
No mortgage, no house. That’s the long and short of it – unless you have a suitcase full of cash and don’t need to deal banks. There are the few fortunate people who pay cash up front, but the rest of us don’t or can’t. So by the time buying a house turns into a full-fledged decision, a mortgage has a way of “moving in” with us in the new home and planting itself in our psyche.
Best to deal with the mortgage issues right away.
First, you need to meet with your bank to get pre-approved. Some builders and agents will take you only half-seriously if they find out that you haven’t been pre-approved for a mortgage. The bank will ask you a set of preliminary questions:
- Your income and that of your spouse
- The mortgage amount you want to borrow
- The amount of down payment you’re willing to make
- Your debt profile (lines of credit, student loans, car and other personal loans, credit card balances, etc)
- Your credit score
- Your monthly expenses vis-à-vis your earnings
- Any other kind of information that the bank will need to determine your eligibility
So as not to overwhelm you because this is your first time buying a house, we ought to warn you that the bank may decide to request additional documents from you. During your meeting, you may also want to discuss mortgage insurance (usually required when your down payment is less than 15%-20% of the total mortgage loan), making extra mortgage payments (if you want to pay off the mortgage sooner), and getting a co-signer for a mortgage.
And if this is not your first time but your second or third time buying a house, you may want to discuss the pros and cons of renewing your existing mortgage or whether you should be getting a second mortgage, because you’ve decided to apply for finance for a second home (like a country cottage or a retirement condo).
House to Go or Build from Scratch?
Once you have the mortgage details all sorted out and building a house from the ground up has always been your dream, then dedicate some time and energy to selecting a home builder. Many people don’t like pre-fab or turnkey houses because they want to put a personal touch to the house. They want to be able to select the materials and fixtures, instead of accepting the builder’s projects as they appear on blueprint.
When selecting a home builder, make sure he is licensed by the city or state government. Check out his reputation. If he comes highly recommended by many people, it would give you peace of mind rather than picking him out of the yellow pages. Read his contract and scrutinize his building schedule and ensure that he delivers the goods at the time specified on the contract. For example, if he mentions digging, laying of pipes and foundation and the first floor by week 3, check that he’s on schedule. Delays can turn into incurable headaches.
If you’re buying an existing home, you will want to obtain house appraisals regardless of when the house was built. The same rule applies when you’re buying a condo. Be vigilant about structural deficiencies.
Moving In? Congratulations!
So…the house is finally yours and the moving truck just dropped off the remaining boxes. Wonderful! This is an exciting time, and the ecstasy of buying a house doesn’t dissipate on moving day. On the contrary. Your agenda planner will now be filled with a “to-do” list that never seems to end.
For instance, your activities will be slightly different now. Are you thinking of tearing down the present paint and going with latex paint? Don’t like the previous owner’s carpets and prefer hardwood? Where can you buy hardwood floors at a good price? Have young kids? Perhaps purchasing a home alarm system is not a bad idea!
Oh yes – there will be tasks to last you a lifetime. A house is a house. But thanks to your efforts and your TLC (tender loving care), you can turn it into a stunning home for your family to enjoy for many, many years to come!