Even in our post-recession world, purchasing their own home remains a dream for many people. Whether you are a young professional, part of a new family, or an empty-nester, the desire for permanence, peace of mind, and independence can be extremely motivating, in part because almost everyone considers these factors important for having a good quality of life.
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When searching for a home, whether for the first time or not, many would-be homeowners finding themselves wondering: what kind of home can I afford and how do I find one that is affordable on my budget?
Determining Your Budget
This is a crucial step in the home buying process. You must take an objective look at your finances to understand how much you can afford to spend on creating your place of familial joy or solitary repose. For many people, this isn't an easy question to answer. It requires serious consideration of debts, bills, and earnings that can be uncomfortable or even depressing, depending on circumstances. Because of this, people often choose to spend time with a financial adviser, loan officer, or other professional to get an accurate picture of their finances and potential budget for a new home purchase. In the end, however, you should have a figure in mind in terms of the monthly payment you can afford.
Remember that the payment includes more than just the principal and interest associated with the home loan. You will also be paying property taxes, homeowner's insurance, and possibly mortgage insurance, making the payment higher than you may initially realize. But first your must find that special home and then find ways to take these additional expenditures into account.
Finding an Affordable Home
In recent years, some of the best real estate deals have been on foreclosures, which are homes that are sold by the bank that holds the mortgage, usually due to non-payment by the owner. Sometimes, homes may be sold at auction by the state/city due to non-payment of property or other taxes. Foreclosures are generally sold well below market value, primarily to prevent the bank or other interested parties from losing even more money on the property. Lists of foreclosures can be found online or sometimes in local newspapers.
Short sales are a similar phenomenon; however, the list price of the home may be higher than a foreclosure. Keep in mind that many of these homes are not necessarily in good condition and may need work, either cosmetic or structural, to make the home livable or nice inside. If you chose to purchase such home, a property inspection beforehand can save you much potential heartache. Replacing a roof, for example, generally costs thousands. Mold remediation is likewise expensive, not to mention hazardous.
Homes for sale by-owner are likely to be affordable; however, the transaction itself can be much more difficult without having professional assistance working on behalf of both parties.
Closing costs can be one major expense. Ideally, the seller should pay the majority of these costs. To avoid surprises, be certain to understand fully what expenses are your responsibility and which ones should not be. High closing costs can represent a serious expense that could be unnecessary or at least negotiable.
The same goes for insurance. It is entirely possible to overpay for a policy that does not provide any additional benefits to the homeowner. You should get quotes from several insurance companies prior to choosing a policy. Do not skimp on coverage! Just make an attempt at getting what you need for an affordable rate through comparison shopping.
Remember, that a larger home isn't always the better home. Budget for what you need, not your necessarily your dream home. That may come later. Consider foreclosures and short sales, but also try to get whatever savings you can at closing. You should definitely shop around for not just the loan, but for insurance products as well.
This is a good guide for home buyers.
I would add for the buyer to be pre-approved for a mortgage before even beginning the search.
This saves both Buyer and Realtor time and everybody is clear on what is possible. For a short sale or lender owned property (REO) a pre-approval must be part of the offer. This is not a condition with regular offers but a pre-approval or proof of funds in case of a cash purchase should be part of any offer today regardless whether it is a depressed property sale or a regular sale. Short sales could take months so if a buyer needs a home fast, a short sale is not the way to go.
Remember that short sales and REO's are AS IS purchases in most cases. You get what you see! Therefore a good property inspection is essential as well as research of possible existing clouds on the title. Prices are still below regular prices but not as much as we saw a few years ago
In general: If you know you have a steady income and you are not moving for a few years, I recommend buying. Today's interest rates are still very low and with a fixed rate you know what to expect in monthly mortgage expense vs rents that are rising.