Golden Rules of Home Buying
Get Pre-Approved. Most sellers will not even accept an offer without one, and you need to know your loan limits before you get your heart set on something you cannot afford.
Choose the best mortgage for you. Work with a lender you trust. If you are required to have a mortgage escrow account and private mortgage insurance, make sure you understand the terms and cancellation procedures. Also, make sure there are no prepayment penalties so that you can utilize an accelerated mortgage plan. A good mortgage reduction plan can save you tens of thousands in interest costs, and shorten your loan term, with only small extra principal payments. If you experience negative changes in your job, health, or marital status, you can revert to the standard payments in your mortgage contract.
Budget for buyer’s closing costs. Expect between 4% and 6% of the home value for pre-paids and lender/title costs… this is in ADDITION to the Down Payment. Be prepared to put down as much as you can. 20% is ideal, but FHA is now offering 3%. The closer you get to that 20%, the better off you are in the long run. If nothing else, 20% will save you from paying private mortgage insurance which in some cases will last the life of the loan.
“PITI”: Principal, Interest, Taxes, and Insurance
- Principal – the mortgage or the amount the bank loans you
- Interest – the cost the bank charges to lend you money
- Taxes – in Houston, property taxes are shockingly high and vary markedly by neighborhood and area.
- Insurance — much like taxes, insurance can run high and many areas of Houston may require flood insurance as well.
- HOA – it isn’t usually escrowed but as a buyer, you should budget for it. Some HOA dues can be as high as $1500 a year; Condos and Townhomes often have monthly dues of $200+ AND yearly assessments for things like a new roof or painting.
ALWAYS get an inspection. Paying for a qualified home inspection before you buy a home isn’t just spending “a little extra” for peace of mind; it’s absolutely essential for anyone who doesn’t want to spend thousands of dollars for repairs.
Avoid ANYTHING that will change your credit. Unless you are prepared to spend a few days explaining that change. Many a deal has died because a would-be home owner went out and bought a new car or a furniture suit right before close. Just as bad is opening a new credit card just to save 20%. The deal isn’t done until the ink is dry and you have keys in hand.
Create a Top 10 List of Amenities. When shopping for a home, list the features (fireplace, fenced-in yard, new appliances, etc.) that are most important to you in deciding on which home to buy. Establishing “your criteria” early on will save time shopping for inappropriate homes and may keep you from buying a home on a whim.
For Peace Of Mind, get a Home Protection Plan. To protect both you as a buyer, as well as the seller, it is a good idea to purchase a home protection plan. What exactly is it? A home warranty, or home protection plan, is a service contract, normally for one year, which protects homeowners against the cost of unexpected repairs or replacement of their major systems and appliances that break down due to normal wear and tear. It’s a negotiable contract between the buyers and sellers which does not overlap or replace homeowner’s insurance policy.
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