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Tip #1: Research
Is The Key To Discovery
Home sellers won't call you with an offer to buy
a maintenance-free home with a wonderful mortgage. You have to find
the gems yourself! Only by reading available
materials, talking to friends and experts, and spending
time looking at different homes, schools, and neighborhoods
will you end up with your American dream. Avoid the nightmares by
learning how best to buy and maintain a home.
Tip #2: Make A
Plan And Get Pre-Qualified
Every important
decision needs to be clearly thought out. Developing a home
buying plan can help you focus on the important factors and organize
the entire process. You may even want to use a binder with sections on
house hunting, home financing, service providers, etc. Loan
pre-qualifying helps you determine the home price you can afford and
presents you as a genuine prospect to the seller. A
lender typically uses the 28% formula (your monthly
mortgage can't exceed 28% of your monthly income) in
approving your loan. Planning your actions and getting
pre-qualified will keep you out of the panic mode and allow you to
take advantage of opportunities. A
thorough plan will save both time and money!
Tip #3: Value,
Value, Value
The days of 10-30%
annual appreciation have passed. Home buyers in the 1970's
benefited tremendously from what seemed like ever appreciating home
prices. Nowadays, you're looking at slow growth while guarding against
the possibilities of falling prices, skyrocketing ARM rates and
corporate layoffs that can dramatically affect your home values. The
classic rule of buying the worst house in the best neighborhood still
applies. If you buy with an eye towards improvement, you can customize
the home to fit your needs. The saying, "make money buying a
home, not selling one," should keep you focused on the long-term
importance of the purchasing price.
Tip #4: Create A
Top 10 List of Amenities
When shopping for a
home, list the features (fireplace, fenced-in yard, new
appliances, etc.) that are most important to
you in deciding on which home to buy. Establishing
"your criteria" early on will save time shopping for
inappropriate homes and may keep you from buying a home on a whim --
for example, because of a circular stairwell -- that doesn't meet your
fundamental requirements. As detailed in Tip #3, your top reason for
buying a home should be the value you are getting. Some of your top 10
amenities should logically be sacrificed if an incredible value is
available.
Tip #5: Fixed vs.
Adjustable Rate Mortgages
Which type of loan fits
your particular needs? If this will be your first home or a
"transitional home" -- one you plan to own for a short time,
an ARM may be the best type of loan. If it's going to be your dream
home or one you plan to raise a family in, then you may want the
stability of a fixed rate mortgage. If you choose an ARM, the index
should be based on the Cost of Funds Index if rates are increasing,
and Treasury Bills if they are decreasing. The COFI's are less
volatile over time than T-Bills; make sure the teaser rate is
understood and what the real rate would be.
Whichever loan you
choose, make sure that you scrutinize all the closing costs.
If you are required to have a mortgage escrow account and private
mortgage insurance, make sure you understand the terms and
cancellation procedures. Also, make sure there are no prepayment
penalties so that you can utilize an accelerated mortgage plan. A good
mortgage reduction plan can save you tens of thousands in interest
costs, and shorten your loan term, with only small extra principal
payments. If you experience negative changes in your job, health, or
marital status, you can revert to the standard payments in your
mortgage contract.
Tip #6: Sign A
Contract That Protects You
Make sure that the
contract you put on a house allows you to arrange financing, inspect
the home and negotiate any problems that you uncover.
Ensuring that the contract you sign will minimize potential legal
battles will let you swim in your new pool with your family and
neighbors instead of with the sharks.
Tip #7: Put
Yourself In The Seller's Shoes
You are about to make one of the most important
decisions that will affect both your life and the life of the seller. If
you take time to understand the reasons the seller bought the home,
their reasons for selling, and the home improvements they have or have
not made, you'll be in a better position to evaluate the home and
negotiate a better deal. In the end, the home buying
process excludes the professionals and comes down to the individuals
buying and selling the home. A closer look at the seller may help you
in deciding whether and for how much to buy a particular home.
Tip #8: Develop A
Mortgage Shopping Chart
One of the biggest decisions to make before
putting a contract on a home is how to finance the purchase. There are
10,000 lenders competing for your mortgage business. The days of
simply walking into the community bank and negotiating with the loan
department manager are over. Today, you can apply for a loan over the
Internet or even use a mortgage broker to shop for your loan with
hundreds of lenders. When choosing a lender,
you want to avoid apples to oranges contrasts by comparing fixed rates
to fixed rates, not fixed to ARM's. Create a chart that
lists different types of loans, fees, and at least five mortgage
providers (including a mortgage broker).
Tip #9: Get A
Quality Home Inspection
Although it is hard to believe, more people pay
for inspections before buying used cars than when making the biggest
investment of their lives -- their homes. Paying
for a qualified home inspection before you buy a home isn't just
spending "a little extra" for peace of mind; it's absolutely
essential for anyone who doesn't want to spend thousands of dollars
for repairs.
Tip#10:
Peace of Mind: Home
Protection Plans
To protect both yourself as a buyer, and well as
the seller, it is a good idea to purchase a home protection plan.
What exactly is it? A home
warranty, or home protection plan, is
a service contract, normally for one year, which
protects homeowners against the cost of unexpected repairs or
replacement on their major systems and appliances that break down due
to normal wear and tear. A negotiable contract
between the buyers and sellers which do not overlap or replace
homeowner's insurance policy, this type of warranty can save the new
homeowner lots of headaches, as well as put seller's fears to rest.
The warranty covers mechanical breakdowns, while insurance typically
repairs the related damage, for example: if a hot water heater burst
and destroyed a wall in your home, the warranty would repair the water
heater and your insurance would pay to fix the wall.
Information provided by
The American Homeowners Association, Copyright© 1998
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