Financial Advice

The financial mechanics of buying a home

Spring is finally here – and guess what’s starting to look really beautiful? Real estate! The snow has all melted, revealing some attractive properties for sale in your neighborhood. Are you shopping for a new “nest” for your family? While curb appeal, location and a good school district may be important factors behind every solid home purchase, the following financial mechanics are essential to keep in mind when house shopping.

1) Know your budget. A rule of thumb is the price of your new home should be no more than three times your household income. Don’t spend time looking at homes you cannot afford.

2) Have a 20 percent down payment. Show your lender that you have the ability to handle money and save your surplus. You may also avoid having to obtain private mortgage insurance, or PMI, which protects the lender from a default.

3) Review your credit scores. Generally speaking, the better your credit, the less it costs you to borrow money. There are lots of ways to find out your credit scores and clean up errors that may be on your credit reports.

4) Find a lender. Review national averages for bank loan rates. Personally, after reviewing the rates, I like to call three different mortgage brokers on the same morning with the same set of variables to see who gives me the best rate.

5) Get a pre-approval letter. After finding out all about your credit, your mortgage lender of choice will give you a letter indicating that you have the capacity to acquire a mortgage of a stated amount. Along with an offer to purchase a home, this letter makes you a more desirable buyer.

6) Prepare for the costs of owning a home. Expenses will include property tax, maintenance, sewer, water, garbage, condo fees, homeowners’ insurance, flood insurance, gardeners, etc. This list will vary, depending on where you live and the type of home you purchase.

7) Consider having the home you intend to purchase inspected by a professional. Expensive problems could be hiding behind the walls of a home you’ve fallen in love with. A certified home inspector will go through every inch of it. If there are any issues, the inspector can provide an estimate for the cost of repairs, which you can then present to the seller to correct the issues.

8) Set aside extra money for your closing costs. On the day you buy your home, you’ll need additional money for lawyers, title searches, taxes and utilities. These can run about 2 percent of the purchase price.

9) Two weeks in advance of closing, get your funds in order. Your lender or attorney will provide an estimate of how much you’ll need. The money may need to be transferred in advance to the closing agent or presented in the form of a certified check from the bank. Have the money available in your checking account, so that it’s ready to go.

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