What you should know before you set out to purchase a home.
Purchasing a home can be one of the most wonderful experiences of your life, or it can be one of the most stressful and terrifying experiences in your life.
For most people, it will certainly be one of the biggest financial transaction they will ever undertake. There aren’t too many things the average American will purchase that will cost hundreds of thousands of dollars.
Before you start looking at homes on all those real estate for sale websites, and fall in love with that cute fixer upper, there are some things you should probably know.
First of all, before you even think about looking at a home, you need to sit down and realistically decide what you can afford. What monthly payment are you comfortable with? What are ALL your monthly debts and how much of your income goes to pay them?
What is your credit score? If it’s below 650, you may have a very difficult time finding a lender that will extend you credit.
Do you have savings? If so, is it enough for a down payment and closing costs, and moving and deposits for utilities? It’s also important to try so keep a cushion of at least 3 months mortgage payments in savings just in case something happens, and you can’t work.
Did you know that if you put down less than a 20% you will have to pay PMI, or in the case of an FHA loan, MIP? PMI means private mortgage insurance. It’s an insurance policy which lenders have you put in place to ensure they lose the least amount of money possible should you be unable to keep up with your payments. And they very kindly allow you to pay for it.
Property Inspections are a must.
Even if you know you are buying a fixer upper, you will want to know what you are in for. Property inspections will NOT find everything that is wrong with a home, there are still things which can turn up that a property inspector can’t see in your slab or within your walls, but the inspector will find most things. Then you can decide if you want the seller to fix them, or if you want the seller to credit you the money in escrow so you have the funds to make the repairs as you see fit.
Fixing up and flipping properties is not as easy as it looks on HGTV.
First of all, unless you are a contractor, or have one with you when you look for a home, I can pretty much predict you will underestimate the cost of remodels and repairs. I have seen it time and time again. There will be permits that must be pulled, design plans that will need to be drawn up, and contractors that will decide a bigger job is more important than yours.
Return on Investment.
Yes, that house was the least expensive one on the block, BUT, if, after repairs and remodeling expensive it becomes the MOST expensive house on the block, you will not see a profit. Would you be prepared to carry the home financially, or rent the home out?
What does it mean to over improve a property?
If you purchase a home in a mid priced neighborhood and add top of the line finishes and appliances and upscale landscaping it is unlikely you will recoup those funds. Over time the rest of the neighborhood could become inspired by your improvements and upgrade their own homes, but you can not count on that. Understand that you can still make those improvements for your own enjoyment, but don’t count on recouping all of those funds when it is time to sell.
Alan and I have man years of experience between the two of us. Before you jump in your car and start looking at homes, just give us a call. If you are just considering en extensive remodel, give us a call. It might be less expensive to purchase a different home.
Abbe and Alan Chane