Purchasing a Home: Tips for the Home Buyer

Reasons to Buy

Non-Volatile Payments
Unlike rent, principal and interest payments on most mortgages are fixed.

Ownership
When you buy, your home is truly yours. Decorate, re-model, landscape, and improve as you wish.

Equity
As you make payments, you build equity in your home that can be borrowed against, or cashed-in at the date of sale.

Tax Savings
Mortgage interest is tax deductible. You can deduct the interest that you have paid over the year from your taxable income. This can significantly lower your tax liability.

Return on Investment
A home is more than just a place to live. It is an investment. When it comes time to sell your home, in many circumstances you may realize a gain—through value appreciation, inflation, or some mixture of the two.

Leverage
Buyers with good credit can finance real estate through first mortgages—with rates significantly lower than those found attached to other types of financing (credit cards, bank loans, title loans, equity lines, etcetera).
Mortgage bankers are able to offer this kind of financing at such advantageous rates to buyers since the loans are secured by a first-position lien on an immobile and appreciable asset (real estate) instead of a lien on a mobile and depreciable asset (cars, boats, trailers, equipment, etcetera).
Fixed-rate mortgage financing gives you the opportunity to conserve cash for greater liquidity—or for other investments with higher rates of return.

Your Credit

To obtain a sufficient mortgage on favorable terms, you will need good credit up to the close of sale.
A few tips to help you accomplish this:

Maintain a history of timely payments and low balances.

Try not to make any large financed purchases prior to buying a home (auto loans and such).

Pay all bills on time.

Resolve any outstanding judgments, liens, or unpaid bills. For each item resolved, request a letter from the other party stating their acknowledgement that the issue has been resolved.

If you have recently divorced, make sure that any joint accounts which still bear your name are not in default.

Do not pull your credit score excessively, for this can lower it.

Beware of companies that claim to clean credit overnight for a fee. It is a lengthy process, regardless of who does it.

Get Pre-Qualified for a Mortgage

It is important that you know how much you can comfortably spend on a home.
Here are the benefits to getting pre-qualified by a mortgage lender:

It will give you a better idea of what you can afford.

It will strengthen your bargaining position in the multiple-offer situations that come up so frequently in hyperactive markets.

It will give you an opportunity to "lock-in" your interest rate. This could save you thousands if rates increase before you buy. Even if rates decrease, you can still get approved at the lower rate.

Your Budget

Traditional forms of home financing require a down payment of three to five percent of the purchase price. Many mortgage companies offer zero down payment loans with terms less favorable than those of traditional loans. The Alabama Housing Finance Authority offers down-payment assistance programs to qualified buyers.
To buy a home, you will need to budget for the following items:

$350 for a home inspection if you elect to have one performed

$375 for the lender-required appraisal

Down Payment:

5% of the purchase price for Conventional financing

3% of the purchase price for FHA financing

0% of the purchase price for VA financing or a non-conforming loan

$50 for the credit report required by lender at time of loan application

Do not spend your last dime to buy a house. Homes periodically need maintenance, and you should keep enough cash in reserve to fix small problems before they become big ones.

Find an Agent

In just about every case, the buyer is not responsible for paying the agent's fees. The seller pays the agent a commission for finding a buyer for his home.
It is always best to seek out an experienced real estate agent when searching for the right home. We know values, we know neighborhoods, we have access to an immense inventory of homes, and it is all provided for you, the buyer, free of charge.
Click here to contact a REALTOR®.

Research

Before you make an offer, ask your agent for a report of all the recent sales in the neighborhood you are buying into. This will help you determine a fair price for the home you are interested in. Offer too much, and you will be feeling it for the next thirty years. Offer too little, and the home of your dreams could slip through your fingers.

Know Your Position

When we write an offer to purchase a home, it is very important to know the kind of market we are dealing with.
In a seller's market, there are more buyers than sellers. This puts you, the buyer, in a weaker negotiating position since you are competing with so many other buyers for a limited number of homes. One minor condition specified in your purchase agreement could potentially make the seller reject your offer in favor of another.
In a buyer's market, there are more sellers than buyers. This strengthens your negotiating position since you have so many homes to choose from. This competition among sellers results in lower prices and better terms for home buyers.
It's all supply and demand in real estate, so keep abreast of what's happening in the "Real Estate" section of the Sunday paper, and ask your REALTOR® about the current housing market.

Keeping it fair and having everyone feel like a winner at closing. That's what it's all about!