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My wife and I have been renting for five years and want to buy a home. Could you share any tips so we can make a wise decision?
I commend you for seeking counsel in what’s typically the largest purchase of a lifetime. Assuming you’ve compared the costs of renting vs. buying to consider the impact to your budget, that you have a sizeable down payment and money set aside for closing, maintenance and emergencies, you may be ready to get out of renting.
I just had a nephew go through a terrible experience with the purchase of his first home and it has motivated me to help others be fully informed about this decision.
Here is a list of important questions and details to help you decide if you’re ready to buy a house.
Is This the Right Time?
If you plan to stay in your home more than three years then buying can be advantageous. This gives you some time to recapture your investment if the home appreciates in value. Be sure to consider the costs of repairs and updates on your new home. If you are stretching to make the purchase and will be broke when you move in then it’s not the right time to buy.
You may have to show a two-year earnings history to get a loan if you’re self-employed or on straight commission. Lenders don’t like to see newly opened credit cards or recent debt, like car loans. And, moving money around 3 to 6 months before buying can negatively affect your credit profile. See if you qualify for any special grants or funding options.
In Proverbs 24:27 we’re told, “Prepare your work outside; get everything ready for yourself in the field, and after that build your house.”
Establishing steady income and preparing prior to home ownership gives you the freedom to focus time and attention to those occupying your house instead of sweating how to pay your mortgage. This is what makes it a home.
Shop with resale in mind. A convenient location near good schools, green space, and shopping are important.
Avoid the biggest or best house on the block. Values typically rise as much as your neighbors’ homes, so the ugliest or smallest house has potential if it’s surrounded by nice homes and you can afford some remodeling.
Are prices increasing in the area you are considering? Multiple “for sales” in the same area is a red flag. Run from proposed projects like highways, mining, or landfills! Avoid existing cell towers, train tracks or highways.
Study the neighborhood at different times of the day. Visit with people out walking or biking. Meet the neighbors and seek the pros and cons of living there.
Do your homework to avoid getting upside down on your home value as compared to your mortgage. A good realtor can be invaluable.
Count the Costs
There are many hidden, or unexpected, costs that come with buying a house. Do your research and don’t be in a rush to buy a house if you can’t adequately supply the cash for every fee.
Down payment: 20% minimum is ideal. Shop lenders for the best interest rates.
Private Mortgage Insurance (PMI): Protects the lender in case you default. Fees vary and are added to the monthly mortgage payment when 20% down payment is not made. Once you owe less than 78% of the purchase price, these payments can be dropped.
My advice: if you think you will need PMI, then you are not ready to buy a house.
Closing costs: Are 2-5% of the overall price of the home and include multiple fees. Sometimes sellers will negotiate and offer to pay all of, or a portion of, the closing costs. Get a total estimate. Several days before closing, the lender will provide a closing disclosure listing all costs. Study it carefully, checking for errors. Don’t go to closing and get surprised!
Home Inspection fee: Goes to a reputable inspector to provide a detailed home inspection, documenting the status and condition of every part of the house. This usually costs several hundred dollars, but can save you thousands. Hire one with years of experience — I highly recommend that you (the Buyer) hire the inspector and not the Seller! Do your research before meeting with the inspector and ask as many questions as you need. They should send you a detailed report afterwards with pictures and an outline of everything they looked at, potential problems, and the current condition of every part of the house.
Repairs: If the inspection identifies problems, you and the Seller must decide who will pay for the repairs. A final walk-through should occur the day prior to closing. With furniture, paintings and rugs removed, check for cracks in walls and floors plus stains in flooring and any new water spots in the ceiling. A heavy storm prior to closing gives opportunity to look for tree damage and water pooling in the yard or around the house.
What stays: There’s a possibility you and the Seller negotiated for a grill, curtains, a washer and dryer, etc. During the final walk-through, check to make sure anything in the contract is present in the house. Any light fixtures, mirrors, window treatments, or appliances the Seller plans to remove must be recorded in the contract.
Moving: Analyze your options of generous friends, truck rental or hiring a company. You can get moving boxes for free at many restaurants and stores that would otherwise throw them away. Don’t be embarrassed to call and ask for them! Uhaul also offers used boxes at a discounted price. Be resourceful with your packing — towels and washcloths can replace packing paper around fragile items.
Remodeling and decorating: Budget adequately and exercise self-control. This is something that comes with time.
SOURCE: The Christian Post – Chuck Bentley is the CEO of Crown, the largest Christian financial ministry in the world, founded by the late Larry Burkett. He is an author, host of My MoneyLife, a daily radio feature, and a columnist for the Christian Post and a well-known speaker. Follow Crown @CrownUpdates. For interviews or speaking requests contact [email protected].