"What do I need to know about buying a new house?" was the question my best friend asked me. I started rattling off a bunch of things, but realized it was too much all at once. So for my pal and anyone who else who is considering jumping into the real estate market, here are my 9 tips for buying a house--feel free to add more in the comments section!
- Run the numbers! Conduct a financial plan to determine whether you can really afford to take the plunge. Assuming that you have squirreled away your 20 percent down payment (I'm not a huge fan of putting down less than that amount, even though FHA will allow it), there are still plenty of markets around the country where renting makes more sense than buying. Check out this great rent vs. buy calculator from the New York Times -- renting might still be the better deal!
- Be an informed buyer: You're not going to buy a house simply because there's a pretty photo posted on line, but you can conduct a lot of price research. That said, there's nothing better than talking to people in the neighborhood for "on the ground" intelligence that can be invaluable.
- Get a copy of your credit report: If you have done so in a while, go to AnnualCreditReport.com and request your free copy. It's important that you correct any errors on the report before you start the mortgage process.
- Get pre-approved for a mortgage: Pre-approval is a good gut check on your price range. Gone are the days that banks will fork over cash to anyone with a heart beat. The best way to start is to ask friends for referrals from mortgage brokers and to shop around with banks and credit unions. Make sure to compare apples to apples and to ask the broker the total costs to you at closing. You should also know that once you actually find a home, the mortgage process is on the same pain level as a root canal, only it requires more patience and there's no Novocaine. That said, You'll be required to pull a mound of paperwork and be prepared for multiple requests for even more documents as you move towards closing.
- Find an Agent: As much as everyone complains about realtors, I still think that it's tough to go through the home buying process alone. In some markets, buyers brokers are available, but the most important qualities in brokers are: honesty, experience, good connections with other agents; and good referrals from buyers like you.
- Hire a real estate attorney: This is a major transaction in your life, so don't try to save money when it comes to legal fees. Even if your mortgage company provides a lawyer, hire your own to help draft all documents and to ensure that your interests are being represented at every step of the process.
- Schedule a home inspection: Think you've found your dream house? Maybe, but unless you have an engineer walk through the premises with you, you might be buying a new roof in a couple of years. Don't get freaked out if a problem arises during the inspection--remember that it can often be solved with a simple adjustment in price. It's imperative to protect yourself so don't blow off this important step.
- Purchase homeowners insurance: If you have only been a renter, this can be an eye-opener in terms of cost. Make sure that you understand the difference between insuring the structure and the contents; and if you are buying property that is close to water, make sure that you have an agent who can help with flood insurance.
- Remember Jill's mother's famous words: You may lose what you think is your "dream house" in the process, but as my realtor mother once said to her client: "A house is like a man--there's more than one for you in the world!"