Friday, May 31, 2013
Common Land Mines for First-time Home Buyers
Why? Two reasons. First, there's many a slip 'twixt the lip and the cup. Your deal may fail for reasons no one can fathom, and you'll have a lot of stuff you either don't need, don't have a place for, or both. Second, you risk screwing up your debt to income ratios if you run up your credit cards, and your mortgage underwriter could nix your loan. I've had this happen.
2. It's about a lot more than the mortgage payment. Too often, buyers equate the monthly payment with a rent payment and figure that not only is it a wash, but it goes into equity and not into a landlord's pocket. There's more to it than that.
Besides the monthly payment, you'll have property taxes, hazard insurance and, usually, homeowners' association dues. Guess what? They don't go down. They go the other way. It makes the monthly holding cost more than people often consider when they buy their first home. A home is a pretty long-term commitment, and you'd be well-advised to plan on staying there five years. If you can't, consider renting.
3. If you live in a townhome or condo, your monthly association fees will cover all or most of the building maintenance. While you might hate writing that check every month, you'd hate it more if you didn't pay anything and the association levied a fat special assessment every time something had to be paid. Instead, associations calculate what major ticket items will cost, adjust for inflation, and collect a little bit at a time. Then, when that $50,000 re-paint job or $75,000 roof repair happens, the money is in the bank.
Suggestion if you own a detached home: Find out what major repairs will cost and when they'll need to be done, and set up a savings account, contributing to it every month.
4. Don't use up all your cash for the down payment.
5. Get pre-approved--not just pre-qualified--for a mortgage loan before you look at a single house."Pre-qualified" means a lender or mortgage broker has looked at your overall financial picture and come up with a possible loan amount based on what you've told him or her. It's also free.
"Pre-approved" means you've filled out an application and paid the fee, turned over pay stubs and other documents, had your credit report retrieved and analyzed and the like. The lender will give you a fairly precise loan amount and interest rate and you'll be ready to rock as soon as you find the home you want. This step can be time-consuming, but it's really worth it. When I was a listing agent, I hated getting offers with only a lender's pre-approval attached. They don't mean much, really, and when it's a competitive market for buyers, you need to give yourself every advantage.