Location, location, location: For most people, house is their biggest purchase and investment. Make sure to purchase a house in a locality that is suitable for your commute to work, proximity to shopping and dining areas, and more importantly schools if you have kids or planning on having kids.
Affordability: Before you decide to buy a house, visit a mortgage calculator website to see how big of a house you can afford. These calculators can provide details on how much your mortgage costs will be accounting for the price of the house, down payment, and the interest rate. Never buy a house more than you can afford.
Mortgage Term: Banks do a great job at marketing longer-term mortgages such as a 30-year mortgage. While such a mortgage can reduce your monthly payment, over the long period of time, most of that money goes towards the interest, leaving very little towards the principal. But, if you chose a 15-year mortgage term, more of your payment will be applied towards the principal. In a low-interest environment like today's, it is in your best interest to choose to a shorter 15-year term so that you can build equity faster.
Audit of Finances: Look at your monthly income and expenses and determine on how a house fits into it. Fannie Mae recommends that buyers spend no more than 28% of their income on housing costs.
Get a Local Real-Estate Agent: Buying and selling real estate is a complex matter. At first, it might seem that by checking local listings online, you could quickly find the right home at the right price. But, no two properties are precisely and exactly alike. Homes differ and so do contract terms, financing options, inspection requirements and closing costs. Also, no two transactions are alike. In this maze of forms, financing, inspections, marketing, pricing and negotiating, it makes sense to work with a professional who knows the community and much more.
Get Loan Pre-approval: Very few people can buy a home for cash. Almost everybody else finance their purchase, which means that virtually all buyers will require a loan. Offers that are presented with a pre-approval letter from the bank are given serious attention by the sellers. Also, the idea of a pre-approval letter is to get the loan that is right for you—the mortgage with the lowest cost and best terms.
Get a Home Inspector: Home inspection may sound like a cost you can save. But, make no mistake, a home inspection can save you thousands of dollars in the long run especially if you're buying a used house. When you find an inspector, don’t be afraid to ask questions: find out what their process is for inspecting a home, how long it usually takes, what their expertise is and what kind of information and paperwork you will receive after the inspection. Finally, be sure to follow-up on any red flags in the home inspection report by hiring experts to come in and take a closer look at a possibly radon issue or evidence of a pest infestation. Also, any problems found in the home inspection can be the source of negotiations with the sellers.
Understand the True Cost of Home-Ownership: Many first-time home buyers forget that there are costs beyond just the mortgage payment. The real costs begin after you move into the house. In addition to mortgage payments, you’ll owe property taxes, insurance and homeowner’s association fees, and be responsible for any maintenance issues that come up while you own the home. You should have a good handle on how much are the true costs of home ownership.
Shop Around for Mortgage: Like with any purchase, shopping around helps you find favorable mortgage terms at favorable lender costs. If you go from one lender to the other, you will notice that these costs fluctuate. Also, some lenders may offer you slightly better interest rate which could save you thousands in the long-term. I saved hundreds of dollars by getting my mortgage through Costco's mortgage program. If you obtain mortgage through Costco’s website from any of the lenders, then lender fees are capped and will never go above what Costco displays on its website. Plus, you consistently get better interest rates than advertised by any of the online or brick-and-mortar outlets. For example, if you are an Executive member, your lender fees will NOT go above $600.
Shop Around for Title Insurance: Title insurance protects the home buyer from problems arising out of fraudulent title transfers, unpaid liens, unpaid property taxes, or unclaimed stakes by the property heirs. Most mortgage lenders simply use a title company of their choice, you are not given a choice. But, you can choose to get a title insurance on your own directly and save several hundreds of dollars. Last time I refinanced, I used a company called Entitle Direct that saved me close to $500.
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