Buying a home is a big step. It is one of if not the biggest investment you will make in your life. It very often represents a huge portion of your gross annual income. When you consider things like mortgage repayments, insurance, repairs and rates among a few, it can represent as much as 40% or more of your earnings. In other words, you want to get it right!
There are a number of steps you can take to protect yourself , such as making sure you have all the right information to make informed decisions with and to insure you get the best deals. Taking a bit of extra time and care upfront will save you a lot of grief. We attempt here to give you some basic tips and to point out some of the easily avoidable traps to help ensure that becoming a home owner is a rewarding and hopefully profitable experience.
Make sure you qualify for a mortgage before you start hose hunting
While you may think you would qualify, it is best to get pre-approval based on your credit history, combined income, assets etc. to to make sure you qualify for a loan. It seldom costs you anything to get pre-approved by banks or mortgage companies and there are many advantages.
· You have a budget to work with so you don’t waste your time looking at places that are outside your ability to borrow.
· You get a clear picture of the added costs of purchase and the ongoing costs associated with a home of the value you are approved for. This is very important! Buying a home is only the first step. You need to be sure you can keep up with the ongoing expenses as well.
· You have greater negotiating power with the vendor when they know you have been pre-approved. It means that they are closer to a sale with you than with other, non-approved prospective buyers. This leverage will sometimes result in savings of thousands of dollars on the purchase price.
· Perhaps the most important advantage is the heartbreak it can save you when you fall in love with a house and find out later you just can’t get the mortgage for it.
There are many traps you can easily fall into if you are not aware of the in’s and out’s of the home purchase process.
It’s not a good idea to deal with a real-estate agent who represents both you and the buyer.
You want to be comfortable that the agent you are using is either looking after your best interests or that you understand that they represent the buyer and are motivated to get the highest possible price for them. This helps you to keep a clear perspective on any discussions you have.
Select your mortgage vendor carefully
The natural inclination is to select a mortgage vendor based on the rate. The problem with this is there are many other factors that can result in the effective rate being higher. Also, you should consider things such as the convenience of direct debit and Internet banking for mortgage payments. You can often get other services like credit cards, savings accounts and personal loans among others, at preferred rates. In some cases, you can get re-draw facilities that allow you to make extra payments to lower your mortgage but then re-draw against the over-payment if you ever need it. Obviously this could be very important if you hit a bad patch and can’t make your payments. The net result of these other services may mean you get a better deal from a mortgage lender with a higher published rate.
Sometimes the real-estate agent for the vendor will recommend a mortgage vendor. It is wise to be suspicious of this.
Get your mortgage quote in writing
When your selected mortgage company quotes you a rate; make sure you get it in writing. That usually means you have to get loan approval first. Make sure you get your rate locked in for as long as possible just in case you have difficulty finding a home you like. Make sure you get the approval and rate commitment in writing.
Assuming that things discussed will be remembered and in the contract
Often a lot of things get discussed when you are looking at a home. Especially when you have been back several times. After a while it is natural to assume things that have been said will go into the deal but it just isn’t safe to rely on either your memory or the especially, the memory of the agent. Make sure you get everything you agree in writing! Even little things can wind up costing you a lot of money and frustration if they are missed I the final deal. Things like window coverings, light fixtures, appliances, carpets can be removed and if they were not in the contract, there is nothing you can do about it.
Make sure the property inspector is properly accredited and working for you
This is especially important on a property that is not new. New properties will have a warranty covering most aspects of the construction, fixtures and appliances. With existing properties, a good inspector will identify all the issues that should be considered. Often these things can be written into the contract to be repaired before the deal is complete, but if not they can certainly be used to negotiate a better price. Getting a property properly inspected will also help assure you don’t wind up with expenses you can’t afford. Even so, it is advisable to allow for things that may have been missed.
Read everything before signing
While we all like to trust people, there are many ways of wording agreements that give the vendor ways out of things. If you don’t feel confident in reading it all yourself, it is advisable to get professional assistance. Even though it will cost you money it may save you a huge amount of grief later.
There are big benefits to shopping for insurance carefully and early.
Leave yourself time to shop around for your insurance. It is possible to save hundreds of dollars a year. Also, policies vary greatly in what they offer so make sure you are getting the best value for money. Strat the process as soon as possible to give yourself time to do it properly. Remember to make sure you have considered any improvements you plan in the coverage.
So, as you can see, buying a home can be tricky but if you are prepared and know what to watch out for you are in good shape to make the right decisions. The peace of mind this provides you when you are shopping is worth it’s weight in dollars. Keep a check list with you at all times and as always, it is highly advisable to use qualified professionals to help you. Check everything carefully and you won’t be writing as many cheques afterwords.
Ron Hughes is CEO of Adapt Information Technology, one of the longest standing Internet businesses in the world. He is also a public speaker and frequent contributor of articles on a variety of subjects. Ron is also a Director of Ozecover, a internet service providing unbiased comparisons of Australian private health insurance plans.