Before Buying A Home

So you want to buy a home....? Great idea - now let's make it work! You need to get organized and have a plan, if you're going to commit to one of the single biggest investments you'll ever make. Home ownership is a wise decision, but you need to approach it fully armed with a plan. Here are a few tips:

1. How much house can you afford? Most experts agree that people can generally afford a home priced 2 to 3 times their gross income. Bear in mind, though, that you don't necessarily want to purchase up to your home buying upper limit; after all, you do want to enjoy life a bit, and perhaps take a vacation once in a while, go out to eat, go out to movies, and be able to set aside savings for those "golden years." Also, you want to insure that you can cover maintenance costs, utilities, etc., and have something set aside for unexpected emergencies.

2. Get pre-approved. Call a mortgage broker, bank or other lending institution and let them pull your credit, discuss your income with them, and see what your mortgage payments would be depending on how much you borrow. Be prepared to get a pre-approval letter from them when you do find that perfect home; you'll want to submit that letter with your offer on the house.

3. Wants versus needs. Sit and make a list about what you feel you absolutely need in a house, then make a list with what you'd ideally like to have, plus a list of "these would be nice, but if not, so be it..." Generally speaking, if a house meets 90% of your "needs" list and includes at least some items from your "wants" list, it's probably the right house for you.

4. Decide on possible locations. Review the various areas you are considering, check out those things which may be important to you - school districts, shopping areas, recreational facilities, etc. and narrow things down, so you're not running from pillar-to-post, only to discover that you like "pillar" but should have skipped "post."

5. Discuss downpayment options with a mortgage professional. Check your savings, and see how much you can comfortably put down when purchasing; bear in mind that there will also be closing costs and "prepaids" - that is, pro-rated taxes, insurance paid a year in advance, plus the costs associated with closing, such as loan origination fees, attorney's fees, mortgage recordation costs, etc. Your mortgage professional can tell you the latest programs available for which you may qualify; in our area, there are 100% loans currently available through Rural Development, but you and the home must qualify for those - information your mortgage broker can readily give you. Also, bear in mind that loans with less than 20% down are usually subject to Private Mortgage Insurance, which can add substantially to your monthly payment; most lenders require PMI for any loans of 80% of the purchase price or more.

6. Know what you're going to have to put out in terms of cash at closing. Ask your real estate professional and your mortgage professional about the money you're likely to have to produce at closing. And bear in mind that, in the Acadiana region, at least, all funds must be certified - no personal checks, no credit cards. Closing costs can run from 2% to 7% or more of the cost of the house.

7. Be sure your credit is ship-shape. In the last couple of years, mortgage requirements have tightened considerably. You're entitled to one free credit report per year from the major credit reporting agencies - check it. Go over your credit report to make sure there are no errors (yes, errors....the credit reports sometimes do containt errors). If your credit isn't the best, ask your Realtor how you can improve your credit. While you may qualify for a mortgage with a lower score, your interest rate is likely to be higher than if you had better credit.

8. Ask your mortgage professional about prepayment penalties. Do ask whether or not you can pay your mortgage off early without fear of a penalty. Even adding an extra mortgage payment per year can substantially cut what you eventually pay in interest, as your loan is paid off early.