This might be a buyer's market, but you still have to be careful about investing your life savings into a new home. Guest writer Chris Birk of Veteran's United has 7 tips to take before you make your next real estate purchase.
As the economy slowly improves, more people are finding themselves in a position to afford a home. Coincidentally (or not), in many areas of the U.S., owning a home is more affordable than renting nowadays. And with historically low interest rates, there has rarely been a better time to buy.
However, purchasing a home is no easy feat. So if you are considering making this major investment, here are 7 tips to help you better navigate the current real estate market:
Tip #1: Take Control of Your Credit Score
While banks may be eager to get foreclosed homes off their hands or gain your business through lending, they aren't going to lend to just anyone. Your credit score still needs to be 700 or better to obtain the best interest rates and terms on loans. So before you even begin seeking out a home or lender, get your credit score as high as possible – even if it means waiting another 6 months to purchase a home. Doing so will only provide you with greater opportunities in the future.
Tip #2: Know the Meaning of a Good Deal
Just because a house is a foreclosure or a short sale, doesn't mean it will necessarily be a good deal for you. As the housing market starts to heat up in certain regions of the country, finding safe and adequate foreclosures is going to become more and more difficult. If you are interested in purchasing a foreclosure, be sure to adequately assess the money that will need to be invested into the home to make it livable, as well as its potential resale value.
Tip #3: Save Up
If you are truly interested in purchasing a home, it is in your best bet to save an adequate amount for a down payment. You should not only aim to put down 20% – which will afford you better interest rates and make you more likely to be pre-approved – but also save an additional amount for closing costs and any updates your home may need such as painting, new gutters, kitchen cabinets, etc.
Tip #4: No Big Purchases
Prior to securing a mortgage, you should abstain from any major purchases. Purchasing a new car, withdrawing a large amount from your savings, or pulling out a personal loan can all scare off lenders. Even if you had been planning to make a large purchase prior to buying a home, wait until you close on the home to do so.
Tip #5: Watch the Trends
If you’ve been living in the same place for some time, you should be able to notice when homes in your area tend to go on sale or when their prices regularly drop. Keep a close eye on the trends in your location so that you can make a great offer when the time is just right and most friendly to your budget.
Tip #6: Hire a Realtor
While no one likes to think about the fees associated with a realtor, they are generally well worth the money. Before you begin house hunting, interview at least 3 highly recommended realtors in your area. Make sure they are able to provide you with necessary insight and help you set realistic expectations for your home search.
Tip #7: Set a Realistic Limit
A crucial task prospective homebuyers should complete prior to looking for a new home is considering their budget and figuring out what they are comfortable with spending monthly on a mortgage. While some people may feel perfectly comfortable being house poor, others are more inclined to keep more wiggle room in their monthly budget. Sit down and actually assess your monthly income and determine how much you are really comfortable with spending on your home. Once you have determined your budget, be sure to tell your realtor that you are firm in this amount so that they are less likely to tempt you with homes outside your budget.
Today's real estate market may still be buyer-friendly, but that is likely to change as interest rates slowly ebb higher in months to come. As the market begins to shift, more people are going to feel pressured into purchasing a home now to insure access to lower interest rates. However, a great interest rate shouldn't be your only determining factor when taking the plunge into homeownership. Be sure to take the time to adequately assess your housing needs, to get your finances in order, and to find a home that is truly a good deal. Otherwise, you could be dealing with a 30-year investment that has just become the bane of your existence.