As recent events in the real estate industry show, people forget about the tremendous financial responsibility of purchasing a home. Here are a few tips for dealing with home financing…
Get pre-approved. Sub-primes may be history, but you’ll probably still be shown homes you can’t actually afford. By getting pre-approved as a buyer, you can save yourself the grief of looking at houses you can’t afford. 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. The emphasis on mortgages used to be 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 the 30-year mortgage instead of the 15-year. This way, you have a lower monthly payment, with the option of paying an additional principal when money is 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 taking the points will save you money.
Do your homework before making an offer. Before you make an offer on a home talk with your agent about the sales trends of similar homes in the neighborhood. Especially consider sales of similar homes in the last three months. For instance, if homes have recently sold for 5 percent less than the asking price, your opening offer should probably be about 8 to 10 percent lower than what the seller is asking.