Monday, March 1, 2010

Buying Your First Home

I am excited to have my first reader response question here at Divine and Debt Free! This question comes from Tabitha and I am so delighted to talk about this topic!

I am wondering if you have your house buying process blogged? I am kinda buying a house ( I say kinda because even though I've gone thru underwriting, I still haven't found a home that I'm satisfied with buying--going on a yr now) and am reading everything I can from others who have already bought. From the bits and pieces I've gathered I've sensed a negative vibe from your experience.

First let me say in spite of some negative things I have said about home ownership on this blog, I still do believe its good. Its one of the best investments you can make especially in today's market. However some of my views have changed slightly as I have gained more incite on the topic which we will explore more so let get started....

We have embarked on one of the biggest housing slumps in recent years. I believe a lot of the downturn had to do with people not being able to afford what they purchased (including me). Yes The economy played a roll as well as banks but over all it was due to people wanting it now and fast.

So my first advice is to only buy what you can afford. "But Mikki how do you know how much you can afford?" Let me tell ya for one don't listen to the bank!! They can approve a mortgage up to 4 times of your gross income based on a credit score. Just because they said you are approved doesn't mean you have to take a loan for the amount they approve you for. A good rule of thumb is 25% of your take home pay. This will ensure you don't become what we call "house poor"

Also you should aim to put down 20% to avoid private mortgage insurance, be debt free with an emergency fund of 3-6 months and get a 15 year fixed mortgage (yes I said it). If you don't have this in place then my friend you are NOT ready. Take it from a person who brought a house while broke (me). Don't be mad if you don't fit the bill, its just my advice on how to have a win win situation. I CAN guarantee you if you do it this way you will keep Murphy and his cousins broke, desperate and stupid away from your door step!

So you say "Mikki I have all that im ready!" Ok good now we can move on to the fun part so here we go!!

Step 2 - Get Pre approve and shop rates: This will insure you are getting the best bang for your buck and also explain the cost of your new home, ie taxes, fee's and interest which we call a good faith estimate based on your loan amount. A few things you will need to be pre approved are : bank statements, proof of income and other investment accounts 401k ect... most recent w-2, pay stubs, taxes, and drivers license.

Step 3- Make a list of features you want: Do you want to live in the city or suburb, ranch home or two story, a garage, walk in closets, lots of storage, big back yard, and the list goes on. This will help a good realtor sift out certain homes for you and trust me it can get as detailed as you like it to be!

Step 4- Find the right realtor: Buyers agents don't cost you a penny!! so shop around! in most cases the home owner pays the commission for your agent which means you pay nothing for expert help so why not take advantage of this! Most realtors require you sign a agent agreement form to insure you aren't wasting their time, so before you sign on the dotted line be sure you are happy with your agent they are working for you!

Step 5- Get a home inspector: Just like realtors not all of them are the same so here are a few tips to help you. Interview a few and ask a lot of questions, ask for references from people they have worked with in the past, do a background check, and make sure they have broad knowledge of home systems and structures. Ask how long they have been in the business and make sure they can provide you with a complete report.

Step 6 - Consider the location: You know the saying location is everything so you want to think about how far of a commute from you job it is, do they have a good school district (good even if you don't have children) are you near shopping, churches, freeways ect.... is it a low crime area.

Step 7 - Do a walk through before you sign those papers: Don't expect every seller to own up to every physical detail that will need to be fixed.

Both you and the seller are out to maximize your investment. Conduct a thorough inspection of the home early in the process, looking for signs of damage or poor construction. Consider hiring an independent inspector to objectively view the home inside and out, and make the final contract contingent upon this inspector's report. This inspector should be able to give you a report of any item that needs to be fixed with associated, approximate cost.

Step 8 - Get an inspection: An inspection should review all cosmetic features, mechanical systems and the structural integrity of the home, such as:
  • Roof and gutter
  • House foundation, basement and crawl space
  • Heating and air conditioning systems
  • Electrical systems
  • Plumbing
  • Kitchen counters, cabinets, faucets, etc.
  • Bathrooms
Step 9 - Make an offer : Your realtor has access to all sorts of information that will keep you from offering too much or too little on a home. Making the right offer on a home is difficult.When negotiating, always use your realtor to communicate with the seller. Your realtor is your go-to person. He or she will advise you appropriately and make sure you don't get in over your head.

Step 10 - check check check: Again, make sure the mortgage is a 15-year, fixed rate mortgage and your down payment is 10-20% of the home's value. Also make sure that your house payment isn't more than 25% of your monthly, take-home pay. Now is not the time to throw caution to the wind just to get the house you want. Slow down and realistically think through everything before you jump head-first into making this major purchase.

I love the idea of home ownership and all that it means, but I do want this time around to be the right way and I am sure you feel the same way. Thanks again to Tabitha for the question and the Dave Ramsey website for all the tips on buying a home. If I missed something please feel free to send me a message.

Oh yes and those of you who are in a position to buy now, don't forget the first time home buyers tax credit ends In April so get to gettin!!

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