by Dana George | May 7, 2020
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Interest rates are at record lows, and once the threat of COVID-19 has passed, it is reasonable to believe that more homes will hit the market. If you hope to buy a home in the near future, here are some ways to make one of the largest financial decisions of your life without feeling bad about it later.
Rushing to buy a home is never a good idea. If you've just moved to a new city and are anxious to put down roots, consider corporate housing or some other short-term living arrangement so you'll have plenty of time to find the right home. Decide how long you want your commute to be and create a radius in which to house-hunt. Get to know the neighborhoods and schools within that radius.
Ultimately, the surest way to avoid buyer's remorse is to take your sweet time before committing to a mortgage. If you're buying in an area of the country with a red-hot housing market and feel pressured to get in on a bidding war, you have even more reason to get to know an area well before fighting for a home.
Before you begin house-hunting, consider the life you want to live. You're going to lay out a large amount of money to pay for your new home, so make sure the investment fits your lifestyle. For example, if you want to walk to your favorite restaurants or be near concert venues and museums, you probably want to buy in the city. If you crave quiet and sitting around a patio fireplace, suburban life may be a better fit. The point is: You want your new home to fit you. Trying to mold yourself into someone you're not by moving to the wrong part of town is a sure way to regret your purchase.
If you're shopping online, try to do it when you have quiet time. Once you come across a home that strikes your fancy, note how long it's been on the market, when it last sold (and for how much), how much property taxes are, and how much the houses around it are worth. Realtor.com and Zillow.com are among the many websites that offer this information. Some facts -- like property taxes and how much a home last sold for -- are reliable. Property values are a guesstimate, meaning you'll need to lean on your real estate agent to verify the information.
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If you're a parent, leave the kids with someone you trust while you tour homes. Although it will be their home too, it's tough to keep your focus on the property when you're worried they'll mess with something they shouldn't.
"Flash" sells. House flippers know it, home stagers know it, and savvy home sellers know it. Flash refers to the decor of the moment. But, like the shag carpeting and avocado-green appliances of yore, trends come and go. If you buy a home because it's decorated like a house you saw in a magazine last week, think about what you'll see five years in the future. By then, much of the decor will be outdated, and magazines will be advertising brand new styles.
The same is true of features that may impress you on first sight, like hot tubs and theater seating in the basement. While it's possible you will still enjoy these things in five years, are you willing to pay top dollar for something that could lose its appeal and need to be removed?
Instead, look at the "bones" of the house -- the architectural style and how well it's built. Though decor choices come and go, architectural attributes will remain.
While lenders -- including conventional, VA, and FHA -- highly recommend buyers have a home inspected, it is not required. However, saving money by skipping a home inspection can be one of the biggest financial regrets of your life. A good home inspector will check:
Home inspectors are generalists, meaning they check for obvious problems. If you want to cover all your bases, hire specialized inspectors once a general inspection is done. These inspectors specialize in things like radon, structural engineering, asbestos, pools, septic systems, and oil tanks. It's worth asking general inspectors who they would call for a specialized inspection if they were buying the home.
If problems with the home turn up during inspection, you can ask the seller to repair them prior to closing, or negotiate a lower sale price.
When you're looking to borrow money for something as big as a home loan or car loan, creditors expect you to shop around. Rather than ding your credit score each time you apply with a new mortgage company, they give you a window of time during which all credit checks from mortgage lenders count as one single check. Depending on the credit score model used by each lender, you have between 14 and 45 days to shop around. Just in case, aim to have your mortgage shopping done in 14 days.
Which mortgage lender you go with matters. Look at the difference 0.5% makes on a 30-year mortgage with a loan amount of $300,000:
Lender A Lender B
|Interest rate: 4.00%||Interest rate: 4.50%|
|Monthly Principal and Interest: $1,432||Monthly Principal and Interest: $1,520|
|Total Interest Paid: $215,609||Total Interest Paid: $247,220|
Data source: Author's calculations.
In this case, taking the time to shop for the best interest rate would save you $31,611 over the life of the loan. That's more money to invest toward something important, like retirement.
The better you examine your needs and get to know a property before buying it, the less likely you are to regret the purchase. The extra time and effort required may just save you a bundle.
Chances are, interest rates won't stay put at multi-decade lows for much longer. That's why taking action today is crucial, whether you're wanting to refinance and cut your mortgage payment or you're ready to pull the trigger on a new home purchase.
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