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January
4

32 Insider Tips for Buying and Selling a House

Tips for Buying a Home

When buying a home, whether to live in or as an investment property, it's crucial to understand financing options, how to apply for a mortgage and the various expenses involved.

It can be easy to get carried away when buying a home, so make sure the property is one that you will be able to afford, maintain and grow with over the years ahead.

1. Save For a Down Payment

The typical down payment is 20% of the sale price of the home. You might be able to get away with putting down less than that, but then your mortgage lender can require you to purchase private mortgage insurance. The insurance protects the lender in case you default on the loan.

That's not a horrible thing, but it will increase your monthly payments by 0.5% to 1%. So it might make more sense to take some time and save more money for a down payment.

2. Check Your Credit

The better your credit score, the lower your mortgage interest rate will be. A score above 720 is ideal for purchasing a home.

Multiple factors are considered when calculating your score, such as if you pay your bills on time, the amount of your debt, length of credit history and types of credit; lenders prefer that you have a variety of credit sources. Check your credit quarterly and fix any mistakes that appear on your report.

3. Avoid Making Any Other Big Purchases

Every time you apply for a new form of credit, such as a credit card, a hard inquiry is run on your account, which can cause your credit score to take a slight dip. Therefore, avoid applying for or opening any new credit forms until after you have purchased your home.

4. Remember Closing Costs

Purchasing a home requires some mortgage-related expenses that might not be obvious at first — this includes closing costs.

Closing costs can include homeowners insurance, appraisals and home inspections, and cost about 2% to 5% of your mortgage. So, closing costs for a $300,000 mortgage, for example, can run anywhere from $6,000 to $15,000. Remember to plan for closing costs when calculating your budget.

5. Get a Buyer's Agent

You might think you're saving money on commission by going at it alone when purchasing a home, but an experienced real estate agent can help you in numerous ways.

Along with helping you to avoid costly mistakes, a real estate agent can do a lot of the house searching for you, help you negotiate a better price and ensure that contracts and paperwork are correctly filled out.

6. Determine How Much Home You Can Afford

A three-story, four-bedroom, three-and-a-half-bath modern home with an infinity pool might be your dream home, but your budget might only allow for something smaller and less extravagant.

Before compiling your wish list for your dream home, run the numbers and figure out how much home you can actually afford. This can save you tons of time when you're out house-hunting and allow you to focus on only those properties that you can actually afford.

7. Include Added Expenses

You will likely run into additional expenses once you move into your new house, so prepare for these costs when calculating your initial budget. Decorating, for example, can cost more than you initially expect. Furniture, fixtures, lighting, paint, carpeting and the like can quickly add up.

8. Choose the Neighborhood Carefully

Location is everything, and for good reason. The neighborhood you buy in will shape your daily living experiences and should match your desired lifestyle. Factors to consider include the school system, crime rate, walkability, public parks, access to shopping, restaurants and other cultural amenities.

9. Determine Your Commute Time

The location of your home will greatly impact your commute time to work, for better or for worse. Before buying, consider your method of transportation — whether it's by car, bus, train, etc. — and the amount of time it will take you to reach your workplace.

10. Buy the Right Type of Property

Know what type of home you want before setting out on a search for properties. This can save you a lot of time when looking for the ideal place.

For example, a condo might be less expensive than a single-family home, but you will forgo a private yard, which can impact family and entertaining time. On the other hand, a condo requires a lot less maintenance than a large house. Weigh the pros and cons of each type of home, and choose one that will best fit your lifestyle and budget.

11. Choose Your Length of Mortgage

Evaluate both a 15-year and 30-year mortgage to determine which one will be most advantageous. The 30-year fixed mortgage is used for the majority of home loans. However, depending on your circumstance, you might benefit from paying your house off in half the amount of time.

The monthly costs will be higher for a 15-year loan, but the interest rates are usually lower than the longer loans. So, in the end, you will end up paying less overall.

12. Get Preapproved for a Mortgage

A mortgage preapproval tells sellers that you are able to get a loan from the bank and that you are a serious shopper. During the preapproval process, the lender evaluates your credit score and history, debt, income and employment history to determine if you qualify for a home loan and at what interest rate.

The lender will give you a letter documenting your preapproval status; the letter should be shown to sellers when an offer is being made.

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