Here are a few tips for dealing with the dollar signs so that you can take down that “for sale” sign on your new home.
Get pre-approved. By getting pre-approved as a buyer, you can save yourself the disappointment of looking at homes you can’t afford. You can also put yourself in a better position to make a serious offer when you do find the right home. Unlike pre-qualification, which is based on a cursory review of your finances, pre-approval from a lender is based on your actual income, debt-to-income ratios, and credit history. By doing a thorough analysis of your actual spending power, you’ll be less likely to get in over your head.
Choose your mortgage carefully. Used to be, the emphasis when it came to mortgages was on paying them off as soon as possible. Today, the debt the average person will accumulate due to credit cards, student loans, etc. means it’s often better to opt for the 30-year mortgage instead of the 15-year. This way, you’ll have a lower monthly obligation, with the option of paying additional principal when you get a raise – or when you get that large bonus. Additionally, when picking a mortgage, you usually have the option of paying points (a portion of the interest that you pay at closing) in exchange for a lower interest rate. But be careful… If you plan to stay in the house for a long time, buying down the interest rate by paying points will save you money. However, when interest rates are very low, it may not be that good an idea.
Do your homework before bidding. Before you make an offer on a home, ask your agent to research the sales trends of similar homes in the neighborhood, especially sales of similar homes in the last six months. If comparable homes have recently sold for 3-4 percent less than the current list price, it may indicate the home is overpriced; or it could mean you are in a rising market. Let your Realtor help you structure an offer that will get you the home you want at a fair price.