Buying a home can be overwhelming and one of the biggest investments toward your financial health. We don’t want you going in to the process blind, so here are a few tips that everyone should know for the process:
1. Be credit-ready
Get your credit report and start repairing any blips. If your scores are below 620 or so, a conventional loan will be a challenge. But if they’re under 740, you still might not get the best rates. Many buyers get a prequalification letter from the lender, but you can one-up them with a preapproval, which comes after a more thorough evaluation of your finances. A preapproval letter shows the seller that you can close quickly.
2. Be willing to lower your negotiation expectations
Lowball offers are tougher in this environment and could eliminate you from consideration. Respond to counteroffers quickly before other buyers enter the picture, you don’t want to start a bidding war. If one breaks out, be prepared to get fewer concessions and pay more money.
3. Recent foreclosure? No problem
Have a foreclosure in recent years? Join the crowd. Though you might think you have to wait seven years to get another conventional mortgage, Fannie Mae, Freddie Mac and the FHA say they actually require just a three-year waiting period if the foreclosure was caused by extenuating circumstances. There are plenty of nonconforming lenders, often called “shadow bankers,” out there if you can endure a big down payment (usually around 20 percent) and above-market interest rates. Or consider a lease-purchase or lease-option where you pay the homeowner a monthly premium above your rent for the right to buy at a set price later.
4. Ask questions
You’d be dismayed at the things sellers aren’t obliged to disclose in many states, including on-premises felonies, suicide, murder or a neighboring sex offender. Don’t be afraid to thoroughly question the selling party in writing before signing the contract. Some questions to consider asking:
- Is there a cell tower, water tower, natural gas well, oil well or other non-residential construction scheduled to be built in this neighborhood?
- Is there commercial zoning on nearby vacant land?
- Is the yard prone to flooding? Are train whistles or other regular loud noises audible there?
- Did known criminal activity occur in the house?
- Are there loud neighbors, dogs or other noise pollution?
- Are there registered sex offenders or other known criminals living nearby?
If the selling party refuses to answer any of these questions, that’s a bright red flag.
5. Get a home inspection!
Before you buy a home, one of the things you should do is to have the home checked out by a professional home inspector. Buying a home is expensive, and protecting such a large investment is a no-brainer. Your first advantage of a home inspection is that it can be used as a contingency in your purchase offer. This contingency provides that, if significant defects are revealed by a home inspection, you can back out of your offer, free of penalty, within a certain timeframe. This protects the buyer. Home inspections can also reveal safety hazards that were previously unknown.