The CINCO Steps to Buying a House
Searching for your dream home? You’ve picked an ideal time to start looking. Home prices and financing rates are falling and the government is giving money to first-time home buyers in the form of a Federal tax credit.
To help make sure you have a positive home buying experience, CINCO has outlined five simple steps to follow as you look for your dream home:
1) Your Mortgage Payment
Many people will make this one of the last steps in the home buying process; however, getting pre-approved before you start looking is the most important step. Many real estate agents and sellers will not want to work with you unless you are pre-approved.
Ideally, your mortgage payment should be no more than 25% of your take-home pay. You may qualify for a much larger loan than what 25% of your take-home pay would give you, but it’s really not wise to spend more on a house because then you run the risk of being “house poor.” That means you may be able to afford the monthly house payment, but as soon as you have something go wrong with the house (broken water heater, leaky roof, new siding), you may not be able to afford it.
2) Location. Location. Location.
After being pre-approved, you will be able to look around town for areas that you can afford. Your house is the biggest investment you’ll likely ever make so be sure to choose wisely. What may be a trendy area today may be replaced by something completely different tomorrow.
When buying a home you need to think long-term. For example, you may not have kids right now but you still need to consider the school system. Is the house in a good school district? Is it in a school district you would want to send your child to? Do some research because you property taxes can vary greatly depending on which school district you’re in. Check out this link for more information about a particular school system: http://www.education.com
You also should consider the home’s proximity to work, the distance between your house and your potential neighbors, the traffic in that area, access to local shopping, etc.
When it comes time to sell, you’ll learn that all these variables may affect your home’s resale value.
3) Order an appraisal
When you’ve found your dream home (in your dream location…see CINCO step one if you skipped it), your next step before making an offer is to order an appraisal. This will give you an idea of what to offer the seller and where to begin your negotiations.
Don’t rely on the lender’s appraisal. Their appraisal is required by the bank to determine whether the house is worth the price you’ve agreed upon. You should order a separate appraisal for your own peace of mind.
Most people try to avoid confrontation, but like it or not, at some point in the home buying process you will have to negotiate the price.
A key factor in negotiating the price of a home is to understand the variables of the economy. If the economy is causing a seller’s market, and similar homes are selling at or above the asking price, the seller will probably have multiple offers and will have a stronger selling position. This may cause the seller not to want to negotiate.
Conversely, if it’s a buyers market, the buyer will have the ability to negotiate the price, especially if the seller needs to get out of their mortgage payment, or if the home has been on the market for a substantial amount of time.
By understanding the economy and the reasons the seller wants to sell, the better you will understand how to negotiate.
The next step is to get a comparative market analysis of the homes in that area. You can ask your Real Estate Agent to get you this information or you can find out on your own through other sources (if you are buying a home in Hamilton County, Ohio you can go to www.hamiltoncountyauditor.org) to find out what other homes in the area are selling for.
In a buyer’s market, you may be able to successfully offer below the seller’s asking price. It’s rare for a seller to accept the first offer without making any amendments to the deal. A counter-offer can be made to include certain perks and/or contingencies. For example, you may want to include a contingency that will include the seller repairing or replacing things in the home based on the home passing an inspection.
If you want certain appliances to stay, you will need to include them as well. Do not use this time to “low ball” the seller. If you are really interested in the house, this may offend the seller and they may just walk away and not want to negotiate. The seller can then accept your offer or make a counter-offer of a new price. If this offer still seems high to you, you may be able to request the seller pay some of the closing expenses. This may get the price at a level both parties will agree upon.
5) Hire a Home Inspector
Your next CINCO step is to hire your own home inspector. You’ve had the home appraised and negotiated a great deal; however, you do not own the house yet and you want to get the home inspected before you take ownership. It is better to pay for a home inspector now than to get stuck with the problems (and expenses) that you might face after you own the home. You do not want to end up like Tom Hanks in the movie Money Pit (if you haven’t seen that movie, stop reading this article now, rent it and then finish after you’re done!)
Home inspectors charge around $600, and before you skip this step because of the costs, remember that if there are any problems with the home, you can still ask the seller to fix them before you sign the deal. If the seller is unwilling to fix the problem, than at least you are not out thousands of dollars once you own the home.