Tips for Buying a House

You are in the market to buy a house and really you are a bit confused about which way to go. Do you hire a Broker or do you try looking for a for sale by owner in the newspaper? Many questions about which is the proper way to spend those precious dollars you have so earnestly saved over the past few years. Tips for buying a home must start with loans.

Do I Qualify for a Loan:

Before getting into looking for a home, it is important to find out if you even qualify for the loan in the first place. Looking at what a lender wants and then looking at ratios they require. There are many things involved in buying your first time or second home for investment. 

What does the Bank Require:

1. Down payment must be in the bank for 2 months or more. If you are doing a 80/20 loan which requires no down payment, then this rules does not apply or a zero down loan with gift money. 

2. Debt to loan ratio must be between 28-36%. This means that you take your income minus debts and then times that amount times 28%. That figure is what you will qualify for in a monthly house payment (the lower end of qualifying rate). That figure must include taxes, insurance and PMI (private mortgage insurance). PMI is an insurance policy for the bank, guaranteeing them that if you default, the loan would be paid in full, so it is very expensive. Most lenders estimate .5% of your payment.

PMI can be avoided by placing 20% down or more on the loan. When placing 20% or more down on a loan, you also get lower discount points from the lender. So with 20% down, there are bank perks not available to a first time home buyers program.

3. Proof of income. The bank will want to see that you have steady income for six months or more. If you are self-employed you will need to supply tax returns for two y ears.

4. Two months of checking account statements.

When you sit down in front of a lender check on all the programs they are offering. They will tell you about fixed rate programs (the interest rate never changes) and variable programs ( the rate varies sometimes every month). A fixed rate is better for anyone in these foreclosure times, especially first time buyers. Many home owners are losing their homes due to rising rates on their variable loans.

Title One FHA Loans:

If you are getting an FHA loan, then the lender can apply for at the same time for a home equity loan also for an amount up to $25,000. FHA does not require any equity in the home. There are closing cost involved in this type of loan, but for a higher interest rate, some lenders offer a zero point loan.
FHA is one that requires no equity in your home. Typically on a regular refinance, lenders require a minimum of 20% equity which technically could take years and years, so this program is an advantage.

Shopping for a Realtor or For Sale By Owner:

If you are a first time home buyer do not even consider buying on your own. There are millions of things that could literally "take you to the cleaners." Without experience in contracts, laws and contingencies, you would not be able to protect yourself. After you have purchased several homes and have more knowledge, then consider the "for sale by owner" but until then stick with a seasoned Realtor.

There are about as many Realtors available as homes, so when choosing a Realtor, look for the same qualities you look for in your home. Location, years of reliability and beauty. Yes beauty is an aspect to look for. Not beauty of the face, but beauty of the heart. An agent who is kind and gracious to you at the worst of times and even when you don't qualify for the loan, is an agent to hire.
Location, Location and Location:

When shopping for a home, especially a first home always look for a home in the best location. Never ever buy in a bad location for price. Some will think about buying a beautiful home in the low end of the city or slums. These beautiful homes never will appreciate in value like a home in the better areas and they are not safe. If you want the best value, look for a place that you could sell easily in 6 months.

Writing a Contract:

When you finally find the perfect home and you want to write a contract look at many things. It is a buyer's market and in a buyer's market no one is offering full price for a home unless your Realtor recommends you to. In some cases, the home has been greatly reduced to allow for a quick sale, due to an impending foreclosure. In that case follow what your Realtor tells you and what you actually qualify for. 

Do not accept a home in "as is" condition. Demand the seller give you a disclosure on everything that is wrong with the home and do a home inspection before placing money in escrow or signing escrow papers. This can be done one to two days after having an agreed upon offer. Insist on a home warranty plan and never agree to sign an arbitration agreement. In many states this takes away your right to litigation in case you are wronged or even lied to.

In the end, buying your first home can be a very enjoyable time. It is exciting seeing all the beautiful homes and it is wonderful thinking of raising your children in a home all their own. Get pre-qualified and know exactly what you can buy and then shop carefully and wisely. First time home buyers, don't be ashamed to take your mom and dad to see the home you plan of buying.