Dealing with Financing

As the events of the last few years in the real estate industry show, people forget about the tremendous financial responsibility of purchasing a home at their peril. 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. Sub-primes may be history, but you’ll probably still be shown homes you can’t actually afford. By getting pre-approved as a buyer, you can save yourself the grief of looking at houses you can’t afford. 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 and credit history. By doing a thorough analysis of your actual spending power, you’ll be less likely to get in over your head. You can also put yourself in a better position to make a serious offer when you do find the right house, by showing the seller you’re qualified and potentially being able to close in a shorter time period.

Choose your mortgage carefully. In this market of rising prices, buyers are having to spend more and get larger loans. It’s generally encouraged to pay off a loan as soon as possible, because opting for a 15-year mortgage saves you a lot in interest, but a 30-year mortgage might make more sense for your current financial position. This way, you have a lower monthly payment, with the option of making additional principal payments when money is good. 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. If you plan to stay in the house for a long time—and given the recent rise in interest rates, you should consider this—taking the points will save you money in the long run.

Do your homework before bidding. Before you make an offer on a home, do some research on the sales trends of similar homes in the neighborhood by talking to your real estate professional. In a hot market with a lot of activity, sales of similar homes in the last three months will be the most relevant. For instance, if homes have recently sold quickly, for over asking price, you need to be ready to submit a strong offer soon after viewing a property, without asking for a lot of concessions.

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