As a real estate agent turned trainer turned real estate agent, I have seen it more times than I can count: the plight of the first home homebuyer; knowing whether or not Mr. and Mrs. Buyer are really and truly ready to take the real estate plunge. The most common reasons that most folks decide to put down roots in a home of their very own are:
They decided that they are tired of throwing money away on rent.
They have had it up to “here” with annual rent hikes.
Or they are all grown up now, getting married or planning a family.
Whatever reason guides you to contemplate a home purchase in your life, being ready is probably the most important element in your recipe for home buying success. To determine if you fit the bill there are five preparatory signs you need to look for.
1. Plan to Stay
Your home doubles as a forced savings plan, but a savings plan that works best when done in the long term. Before buying, I would tell my clients to consider what they needed as far as a down payment, account for annual home maintenance fees and repair expenses, and (from those things) discern a monthly amount that suited them – so as not to stray too far away from their total monthly financial comfort zone. However, I would also tell my newbie clients that they needed to plan to stay in the home for at least five years if they wanted to build any substantial equity in it, thusly getting the largest (and best) return on their investment.
2. Pre-qualified or Pre-approved
While market conditions rarely stay the same, one element of a real estate purchase remains unchanged: getting pre-qualified before you shop. Why? Frankly because no serious seller will entertain an offer from you unless you are pre-qualified for pre-approved for a mortgage (if you aren’t paying in cash, that is), meaning you are essentially wasting your time spinning your wheels if you shop before having that letter in hand.
You can’t set a moving date before setting a closing date. When working with renters who were turning into buyers, my advice was always to remain flexible on a moving date, until we had found a house and set a closing date on a contract. If you “have” to move, it can put too much undue pressure on you as a potential brand new homeowner. Moving takes carefully planning and preparation. Make sure you are prepared for that.
4. How Much Have You Saved?
Minimum down payments for most mortgage products range from 3.5 percent to 5 percent of the purchase price. On top of that, you should factor an additional three percent toward closing costs and pre-paid items, inspections, appraisals, enough for moving expenses, utility deposits and have some solid liquidity in your emergency fund to boot. Most lenders want to see money in your bank before they will let you take money out of theirs, meaning a minimum of three months’ worth of a mortgage payment in reserve.
5. Stay Grounded
Buying a home and navigating today’s complex real estate landscape can be easier said than done when you have the right professional at your side. In fact, not having one could cost you. Since having representation as a homebuyer costs you nothing out of pocket, there is no reason to remain an island in a sea of people willing (and ready) to help you determine if you are ready to take the plunge into homeownership.
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Real Estate Agents: Getting Rich in a Talent Poor Industry
A Real Estate Survival Guide to Working With Fledgling Investors
Why I Stopped Stepping Over Dollars to Pick Up Dimes