Are you like a lot of people? When people bring up money, and your finances, do you start to sweat? Do you stop listening to what they are saying, even if you know it is good information? Does the whole topic just make you so uncomfortable that you just avoid it? Well, if you would like to buy your next home, you need to stop avoiding it. Here are three things you MUST HAVE BEFORE you start home shopping.
Get pre-qualified. I mean get a pre-qualified completely. There are a bunch of boxes on that pre- qualification form that the lender has to check that he has seen…your pay stubs , your bank statements, your tax records, down payment reserves….get them all checked off. Also, if you have questions, no matter how dumb you are afraid they are, ASK THEM. Ask everything….ask, ask , ask. Ask over email if you retain better by reading something, or ask over a phone call if that is better for you, or go meet with the lender in person if that works best for you….and if you forget, ask again. I can’t emphasize this enough. I love email because I can reread it when I forget…and I forget things all the time! Click here for the BEST lender I’ve found after 15 years in the business.
Money up front. Make sure you have earnest money AND money for inspections AND money for the appraisal ready to go. Meaning in your bank account and not needed for any of your monthly bills. How much is this? Depends. This is not the money you need at closing….this is money you need available when you START.
- The earnest money is not a set amount…you can offer whatever you want as earnest money, but that doesn’t mean the seller will accept any amount. I often see earnest money being around 1% of the purchase price of the house you are trying to buy. So if you are buying around $200,000…I suggest having $2000 set aside for earnest money. If the purchase goes through your earnest will be applied towards your down payment and/or your closing costs. You will need this money available to deposit when you make an offer.
- Inspections vary in cost as well…but a licensed inspector usually charges per square foot, and age of the house, plus additional for the pool and spa if the home has those, so around $300-$500. You will also want to get a termite inspection for live infestation, usually around $60-$75. Also, if you want further inspections by a professional you may have to pay for those as well…like a pool guy to look at your pool pump, or a roofer to assess the life of the roof, or a structural engineer to look at the home’s foundation. You will need this money within the first 10 days after contract acceptance…during your inspection period.
- Appraisal cost…usually around $350-$450…and needed as soon as the appraisal is ordered, so around 10 days after contract acceptance.
BUDGET. Know what your monthly costs are…all of them. I don’t just mean the big ones like rent (mortgage), and car payments. What do you spend on other stuff…like eating out, or Direct TV, or pedicures? Your kid’s sports? Go through every single thing you spent money on last month. You might be shocked to see what you spend. Make sure that you will be able to still spend money on those things with your new purchase and the new mortgage payments. Did you factor the HOA dues into the budget? What about increased utilities if your home will be bigger? What about gas if you are buying further away from your work? You really want to spend time dissecting where your money goes every month…and see if those costs will change with a move….and if you are willing/able to give any of them up. You don’t want to be “house poor”, meaning you don’t want to change your life too much to afford your new home. You might not want to spend as much as you qualify for ….but know this BEFORE you start shopping for your next home.
There are lots of loan programs out there to help you with your down payment, or you can ask the seller to help you with closing costs…but being prepared and knowledgeable is imperative to having a positive experience when home buying. That all has to start BEFORE you start home shopping. And ASK if you have questions!!! Ask me, ask the lender, and don’t be afraid to ask again!
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