In this no-fluff SMART ESSENTIALS guide, you’ll take away concise, practical, insider strategies to do three things:
<> Buy the home of your dreams for the best price.
<> Save money and time buying a home that fits your needs for the lowest monthly payment.
<> Avoid the costly mistakes even smart home buyers make.
We Respect Your Time
We call this a SMART ESSENTIALS guide because it includes everything you need to know once you decide to purchase a home — and doesn’t waste your time on extraneous filler. We spare you the side trips, such as noodling the decision to buy or not, how to repair your credit, sample contracts and check-the-box inspector reports, settlement documents explained line by line, weighing buying over renting, sticky-dot moving tips, blah, blah, blah. Why? Because you don’t need to become a real estate expert. You just need the essential, up-to-date and relevant information to make smart decisions throughout the home buying process and to ask the right questions of the professionals on your home buying team — your agent/broker, loan officer, inspectors, settlement agent, etc. We keep your eyes on the prize: Buying the perfect home at the best price and lowest payment.
How This SMART ESSENTIALS Is Organized
After learning the essentials of how to BUY SMART, there are six key decisions you must get right from the start, which shapes the following sections of your SMART ESSENTIALS guide:
<> TEAM: Find the right buyer’s agent and mortgage professional to be the core of your home buying team.
<> BUDGET: Figure out the biggest loan you can get, but actually buy the best home for you that you can afford.
<> MONEY: Nail down the perfect loan that is right for your financial situation.
<> SHOP: Preview only homes that fit your budget and lifestyle. (Time is money.)
<> NEGOTIATE: Craft your offer and play your counteroffers to get the best contract.
<> CLOSE: Avoid costly mistakes that can torpedo your purchase in the home stretch.
Most Important: We Want To Hear From You. Often.
Nothing informs our readers as much as stories from other Smarties … what they did right, stupid mistakes they can laugh about (now) and advice on tricky choices they had to make along the road of good intentions. Come back regularly to our website at http://www.SmartEssentials.com. Share your story. Check out the amazing tips and slips other Smarties experienced. We love your stories! And, we know other Smarties do too.
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CHAPTER 1 :: BUY SMART
Buying a home is far from simple or easy, especially in today’s toughest markets. It can be difficult to stay focused on the essentials … and not being distracted by the collateral chatter that surrounds one of life’s most important purchases.
To buy a home today, you need to avoid the costly, sometimes painful mistakes other home buyers have made before you. You can avoid problems by paying attention to the following essential lessons other buyers have had to learn the hard way.
12 ESSENTIAL KEYS TO BUYING A HOME
1. Check your credit before you apply for a loan. Before you apply for a mortgage and start touring homes, make sure your credit is in good shape. You can get a free look at your credit reports from the big three credit reporting agencies — Equifax, Experian and TransUnion — by going online to www.AnnualCreditReport.com. (Although the reports are free once per year, you’ll have to pay a small fee to see your actual credit score.) Several months before you plan to apply for a mortgage, do what you can to improve your credit score if it isn’t in the excellent range — 740 or higher. You may need to pay off credit cards, redistribute your debt and/or correct errors in your credit reports.
2. Plan your housing budget realistically. (1) Figure out how much cash you have on hand to put toward a down payment and closing costs. (2) List all the expenses you’ll incur as a homeowner (except your monthly payment for principal and interest), including estimated property taxes, insurance, utilities, maintenance, repairs and new furnishings. (Don’t worry: We’ll show you how to find accurate figures for your situation in Chapter 3.) (3) Add your other regular expenses for car payments and loans, transportation, clothing, food, recreation, medical care, college fees, retirement savings, etc. (4) Subtract the above expenses from income. (5) What’s left over will be the realistic monthly housing payment you can comfortably afford — even if you’re tempted to borrow more and are approved to do so.
3. Gather information. Find out about the home buying process so you’re comfortable each step of the way. How? Keep reading. Then, investigate and review local property data to get an idea of price points, listing-to-sales-price ratios, hottest areas and best places for a bargain. Research schools in the area you are interested in. A wealth of information is available online, at your local library, in books and eBooks about home buying or by contacting a buyer’s agent real estate professional. Although a real estate agent can help guide you through the process, learning the lingo and standard local practices beforehand will help keep the cork on your stress level. Your buyer specialist will provide up-to-the-minute stats of what comparable properties sell for in specific neighborhoods and what impact various features have on price.
4. Get pre-approval for a mortgage before you begin home shopping. In today’s marketplace, touring homes without knowing your buying power is a waste of everyone’s time … especially yours. Getting loan pre-approval eliminates surprises and saves you valuable time. Additionally, home sellers can smell an unqualified buyer from the curb and prefer to work with buyers who already have a mortgage commitment from a lender. Starting out knowing exactly what you can borrow for a home (instead of the wishful thinking a “pre-qualification” provides) will help you narrow your search to the price range you can afford. Finally, being pre-approved for a loan shortens the time to closing or settlement once you strike a deal with the home seller.
5. Select the right loan. If you only plan to live in the home five years or less, you may want an adjustable-rate mortgage, which often carries the lowest interest rate available. Cash-strapped buyers will want to look for a low-down-payment program, but should factor in the cost of private mortgage insurance (PMI). Compare interest rates using APR (Annual Percentage Rate). (More about PMI and APR in Chapter 4 MONEY.) Be sure to calculate how much each option will cost you monthly and during the entire period you’re likely to own the home. Simply put: You’ll need a professional mortgage lender to help you compare different loan products to find which one best fits your financial situation. We’ll show you how to find that lender.
6. List what you must have in a home first, then prioritize your wants. Think ahead. Consider changes that might affect your housing requirements in the next several years. Remember, though, if you’re buying your first home, it doesn’t have to meet your needs or dreams for a lifetime; after building some equity, you should someday be in a position to sell your home and buy another. (More in Chapter 5 SHOP.)
7. Select a top-notch buyer’s real estate professional. Ask friends, neighbors, family members and co-workers for recommendations. Read reviews online. Visit the online presence of the real estate pros you’re considering and check for Facebook and LinkedIn pages. Observe their responsiveness and interactions. Although it’s valuable to talk with several agents first, you’ll be best served working with one top agent you have a good rapport with, one who knows the local market and listens closely to your needs. Hiring a buyer’s agent who will