How to Buy a Home: 7 Tips and Tricks from Real Estate Insiders

How to Buy a HomeNo matter if you’re in a buyer’s or seller’s market, there are a few critical steps you can take to make a smarter purchase. Since buying a home is likely the biggest single investment you will ever make, being prepared will help you make a better purchase. Here are 7 tips and tricks to buying a home.

Know Your Buying Power

What is your buying power? It is your ability to borrow plus the cash you have available for a down payment and closing costs. Your credit-worthiness and income will affect how much you can realistically borrow for a home.

First, you need to understand the hidden costs of buying a home. You will need to save not only for the down payment of your home — which is typically between 10% – 20% of the offer price, but in certain situations can be less — but also for any additional transaction fees we call closing costs. In San Diego County, these are things such as loan fees, escrow fees, title insurance, property tax and prepaid interest.

Then you need to know what you can realistically afford each month to understand how much house you can buy. Your mortgage rate will depend on your creditworthiness. If you have a high credit score, your lender will likely approve you for a lower mortgage rate, which can save you thousands of dollars per year in interest.

How much of your budget should go to your monthly home costs? According to SmartAssets, you can use the 36 percent rule as a rough guideline. This means that your monthly obligation shouldn’t be more than 36 percent of your monthly gross income.

A loan professional can help you figure out how much house you can afford. If you want to see what those numbers look like before you speak with a loan professional, go to my Financial Applications page. There you can plug your numbers into an initial qualifier, look at the cost of renting verses owning and find out what the cost of waiting to buy might be.

Fix Your Credit with the Help of a Loan Professional

According to CreditKarma, a good credit score is usually 720 or above. You want to clean up your credit as soon as you can, and definitely before you are ready to buy.

When you apply for your loan pre-approval, you don’t want to have anything to hide on your application. So don’t lower your credit score by doing anything that will originate more inquiries into your credit. For example, don’t open any new credit cards. Also, don’t omit any debts or loans when you apply. If the loan officer discovers them in the application process, they may deny you a pre-approval.

Get a loan professional to check your credit score for you. A professional can give you a clearer idea if your score is in the ‘good’ range, or if you need to do some credit cleanup before getting a mortgage preapproval.

Work with a Knowledgeable Buyer’s Agent

Do you understand what kind of market you are buying into? Even within a city’s limits, there can be micro markets that are increasing or decreasing in value.

That’s why it’s important to hire a highly competent real estate agent who knows the specific market. You want to make sure that the professional you’re working with really understands what the market is like and will help you find the home that you desire.

A buyer’s agent will know which neighborhoods are up and coming, with potential for increased property value, and which fit your lifestyle needs. They’ll also be able to give you a list of comparable homes that have recently sold in the neighborhoods that interest you. This will help you know if a home’s list price is above comparable properties so you don’t overpay for a home.

Don’t Try to Time the Market

Even in a hot market, there’s never a perfect time to buy a home. It can take a while to know exactly what you like, and you may have to look at 10 or more homes before you can recognize what suits your lifestyle best. While you’re shopping, take photos of your favorite properties and the details that you liked the best so that you can remember what you liked.

Another good reason to slow down the buying process: you might find a better deal if you do. Investigate expired listings. Expired listings may have gone off the market because they didn’t get any offers at the listed price, so you may be able to underbid the original listing price. It’s not likely worth your time to look at FSBO (for sale by owner) listings, though. Since they are not represented by a professional, they are often overpriced. Your agent may also know of exclusive listings not available to the general public.

When you start shopping, have a one-hour initial consultation with your realtor. Give them every single detail that you know about your lifestyle, buying power, needs, wants and desires for your home. The more detail you can provide, the easier it will be for them to help you find your future home. Take a look at my buyer’s questionnaire. It will help you figure out what all of those details are.

Make the Offer As Soon As You Find the Right Home

If you love it, make the offer. Otherwise, that dream home may disappear faster than you think, especially if you’re buying in a hot market.

Your buying agent should contact the listing agent before you submit an offer so that they can decide what’s important to include in the offer. If you’re serious about it, you want to increase the chances that your offer is accepted.

Show that you’re serious about the purchase by having your agent create a buyer’s offer packet. It should include your lender’s preapproval letter, your offer, comps that support the rationalization of the offer you are presenting, and sometimes a letter to the owner about what you love about their home.

Get a Home Inspection

Once you have an accepted offer, it’s essential that you get a third-party inspector to run a thorough home inspection. The inspector will be looking for major structural issues, including problems with the foundation, plumbing, and electrical systems. Your inspector should be extra picky, pointing out the most minor faults. The inspector may also suggest having someone from a specific industry take a closer look at one of the home’s systems.

Make sure to have the inspection conducted before it is too late to back out of a deal. If there are any major structural issues or necessary repairs, you have the option of asking the seller to make those fixes, credit you the amount it will cost to repair them so you can do so after you close, or negotiate a lower purchase price for the property.

Protect Your Credit Before You Close

Don’t raise any red flags with your creditworthiness in the weeks before closing. Any one of these moves could mean that you’re denied the loan and the deal falls through — even if you’ve already been preapproved!

  • Keep your spending to a minimum and don’t make any major purchases before closing — that includes buying furniture, or a car, truck, or van, or any excessive charges on your credit card.
  • Keep your bank accounts stable. Don’t change banks, spend any of the money you have set aside for closing, or make any large deposits to your accounts without checking with your loan officer first.
  • Keep your employment situation stable — do not change jobs, quit your job, or become self-employed. Any sudden change in your income can have that preapproval offer rescinded.
  • Do not cosign a loan for anyone. It will open an inquiry into your credit and add to your debt, which could raise your mortgage rate and cost you thousands of dollars over the life of the loan.

Need more information about home buying? Check out my buyer’s tips.

Looking for a home in San Diego County? Let me help you find the home of your dreams. I’m well versed in the local North County and San Diego real estate markets, and can help you find the right home in the right neighborhood. Contact me today.

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