Money Girl answers 3 FAQs about real estate to help you succeed whether you're a buyer, seller, or investor—or even if you just plan to become one someday.
Mistake #1: Shopping for a home before getting pre-qualified for a mortgage
Not only does getting pre-approved for a home loan tell you exactly how much home you can afford, it comes with other benefits. Being pre-qualified for a mortgage tells your real estate agent that you’re a serious homebuyer. In fact, most good agents won’t even work with you until you’re pre-approved.
Pre-approval saves you and the agent a lot of time because you can focus on homes that are in your price range only. That helps avoid the heartache of falling in love with something you can’t afford.
Another huge benefit of getting pre-qualified for a home loan comes when you make a purchase offer. The seller will know that you have the means to buy their property and can close the sale quickly.
Depending on the seller’s circumstances, being able to close quickly could give you a huge leg up. They may accept your offer instead of a higher one that would take longer to close.
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Mistake #2: Ignoring first-time homebuyer programs
There are many great programs for first-time homebuyers that may include mortgage interest subsidies or down payment assistance. But did you know that even if you owned a home in the past, you may still be eligible?
Many first-time homebuyer programs define a first-timer as someone who has not owned real estate in the past 3 years. So be sure to investigate and ask your mortgage lender how these programs could save you money, even if you owned a home in the past.
Mistake #3: Considering only a 30-year fixed-rate loan
While it's true that 30-year loans are still the cornerstone of mortgages, they may not always be the best choice for first-time homebuyers.
If you believe that your family will grow or that you’ll earn more in a few years and may want to buy a larger home, consider getting an adjustable-rate mortgage (ARM) instead of a fixed-rate mortgage.
With an ARM you get a lower introductory rate and lower monthly payments, which can save you money in the short term. Having lower monthly payments may allow you to qualify for a larger loan and buy more home than you could get with a conventional 30-year fixed-rate loan.
If you’re ready to find a lender and get pre-approved for a mortgage, I created a one-page reference guide called the Online Loan Comparison Chart. This resource spells out each lender’s starting APR, their maximum loan amounts, and the type of loan they offer, such as home loans, auto loans, business loans, or personal loans. Click here to download the free Online Loan Comparison Chart PDF.
Should I Sell My Home to Buy Investments?
Real Estate Question #3: Anthony F. asks, “I live in a great neighborhood and want to purchase rental properties here, but don’t have the cash for down payments. If I sell my house, I could raise about $125,000 to buy properties, and then move into a rental. Should I do this in order to buy more real estate and stock investments?”
Answer: Having a nice chunk of equity in your home is a great position to be in. While it’s really tempting to sell your home and use the equity for investments, I’m going to recommend that you don’t.
Since you mentioned that you’re considering renting your next home, I’d keep your current house and turn it into a rental instead of selling it and buying a different rental property.