As the events of the past few years in the real estate industry show, people neglect the tremendous financial responsibility of purchasing a home at their own peril. Here are a few tips for dealing with the dollar signs so that you can take down that “For Sale” sign on your new home.
Sub-primes may be history, but you’ll still be shown homes you can’t really afford. By getting pre-approved as a buyer, you can save yourself the time and grief. You can also put yourself in a better position to make a serious offer when you do find the right house. Unlike pre-qualification, which is based on a cursory review of your finances, pre-approval from a lender is based on your actual income, debt, and credit history. By doing a thorough analysis of your actual spending power, you’ll be less likely to get in over your head.
Choose your mortgage carefully.
Used to be the emphasis when it came to mortgages was on paying them off as soon as possible. Today, the debt the average person will accumulate due to credit cards, student loans, etc. means it’s better to opt for a 30-year mortgage instead of a 15-year. This way, you have a lower monthly payment, with the option of paying additional principal when times are good. Additionally, when picking a mortgage, you usually have the option of paying additional points (a portion of the interest that you pay at closing) in exchange for a lower interest rate. If you plan to stay in the house for a long time—and given the current real estate market, you should—taking the points will save you money!
Do your homework before bidding.
Before you make an offer on a home, do some research on the sales trends of similar homes in the neighborhood with sites like Zillow. Consider especially sales of similar homes in the past three months. For instance, if homes have recently sold for 5 percent less than the asking price, your opening bid should probably be about 8 to 10 percent lower than what the seller is asking.
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