If you are in the market for a home, especially your first one, the process can seem a bit overwhelming. Fortunately, the Fool is here to help. We asked three of our analysts what prospective homebuyers need to keep in mind, and here is what they had to say.
Matt Frankel: One very important thing to do when you buy a house is to shop for a mortgage. This sounds easy enough, but you'd be surprised how many people think all banks offer the same rates, or that shopping around for a mortgage will be devastating to their credit score. Nothing could be further from the truth.
As long as all of your mortgage applications (and their subsequent credit inquiries) are done within a 30-day period, they will count as a single inquiry on your credit for scoring purposes.
And, the savings can be pretty impressive, even with small differences in rates. Just as an example, consider that a $250,000 30-year mortgage will have principal and interest payments of $1,194 per month at 4.00% interest. At 3.90%, the payment drops to $1,179, which may not sound like too much of a difference.
However, over the life of the loan (360 monthly payments), this adds up to $5,400 in savings. Sure, it may take you a few hours, or even a whole afternoon of your time to fill out the extra mortgage applications, but isn't that kind of savings worth your time?
Leo Sun: First-time home buyers should carefully consider their long-term plans, and see if the property will still suit their personal needs ten years down the road.
For example, newlyweds who plan on having children shouldn't settle on a condo with a single bedroom and bathroom. If children are part of the picture, an area's school ratings -- which can be easily found on Zillow or Trulia -- are a critical part of picking the right location. Are you close enough to work? If so, do you plan on staying at your current job for the next decade?
Homeowners associations (HOAs) are another part of this long-term outlook. Are the fees and rules reasonable? In many areas, HOAs can actually foreclose on homes for past due payments.
Another part of that ten year outlook is local development. If a brand new hospital is being built across the street, property values will skyrocket as well-paid doctors look for houses close to work. But if a prison is scheduled to go up nearby, property values will plummet. Real estate agents and builders can offer valuable advice regarding these plans.
The key takeaway is to make sure to do your due diligence -- after all, your home will probably be the biggest purchase you make in your entire life.
Jordan Wathen: Over long periods of time, home prices have merely kept up with inflation. Thus, homebuyers who see a home as an investment often make the grave mistake of buying too much house with money borrowed at a rate much higher than inflation -- the definition of a bad investment.
Furthermore, home prices tend to rise and fall in proportion with the local market. Thus, if your house rises in value by 10%, so have other homes in your area. The net result is that whatever you "earn" from your existing house is simply spent on paying higher prices for your next house.
That doesn't mean you shouldn't seek to find a good deal when home shopping. You should simply see a good price for what it is -- a bargain for a place to live, not an investment.
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