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mistakes and how to avoid them
Not figuring out how much house you can afford Without knowing how much house you can afford, you might waste time. You could end up looking at houses that you can’t afford yet, or visiting homes that are below your optimal price level. For many first-time buyers, the goal is to buy a house and get a loan with a comfortable monthly payment that won’t keep them up at night. Sometimes it’s a good idea to aim low. Use a mortgage affordability calculator to help you know what price range is affordable, what’s a stretch and what’s aggressive.
Getting just one rate quote Shopping for a mortgage is like shopping for a car or any other expensive item: It pays to compare offers. Mortgage interest rates vary from lender to lender, and so do fees such as closing costs and discount points. A typical borrower could save $430 in interest just in the first year by comparing five lenders, NerdWallet finds. All mortgage applications made within a 45-day window will count as just one credit inquiry.
Not checking credit reports and correcting errors Mortgage lenders will scrutinize your credit reports when deciding whether to approve a loan and at what interest rate. If your credit report contains errors, you might get quoted an interest rate
By Holden Lewis NerdWallet.com
very year, first-time home buyers venture into the market and make the same mistakes that their parents, siblings and friends made when they bought their first houses. But today’s novice buyers can stop the cycle. Here are some mistakes that first-time home buyers make — and what to do instead.
that’s higher than you deserve. That’s why it pays to make sure your credit report is accurate.
minimum down payment of 3.5%, and some conventional loan programs allow down payments as low as 3%.
Making a down payment that’s too small You don’t have to make a 20% down payment to buy a home. Some loan programs enable you to buy a home with zero down or 3.5% down. Figuring out how much to save is a judgment call. A bigger down payment lets you get a smaller mortgage, giving you more affordable monthly house payments. The downside of taking the time to save more money is that home prices and mortgage rates have been rising, which means it could become more difficult to buy the home you want and you may miss out on building home equity as home values increase. The key is making sure your down payment helps you secure a payment you’re comfortable making each month.
Not looking for first-time home buyer programs There are plenty of low-down-payment loan programs out there, including state programs that offer down payment assistance and competitive mortgage rates for first-time home buyers. Ask a mortgage lender about your options and look for programs in your state. You might qualify for a U.S. Department of Agriculture loan or one guaranteed by the Department of Veterans Affairs that doesn’t require a down payment. Federal Housing Administration loans have a
Not knowing whether to pay points Mortgage discount points are fees you pay upfront to reduce your mortgage interest rate. Interest rate savings can add up to a lot of money over the life of a mortgage, and discount points are one way to gain those rate savings if you’re in the right position to purchase them. If making a minimal down payment is an accomplishment, don’t buy points. If you have enough cash on hand, the value of buying points depends on whether you plan to live in the home longer than the “break-even period.” That’s the time it takes for the upfront cost to be exceeded by the monthly savings you get from a lower interest rate. Emptying your savings “That’s a growing pain for the first-time homeowner, when stuff breaks,” says John Pataky, executive vice president of the consumer division of EverBank. “They find themselves in a hole quickly,” if they don’t have enough saved for emergencies. Save enough money to make a down payment, pay for closing costs and moving expenses, and take care of repairs that may come up. Lenders will give you estimates of closing costs, and you can call around to get estimates of moving expenses.
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How to spot a
By Holden Lewis NerdWallet.com
The deﬁnition of “motivated seller” has changed since the depths of the economic crisis about a decade ago, when many were trying to avoid foreclosure.
ome shoppers outnumber home sellers in many places. If you’re a home buyer, you need every competitive advantage you can get. That’s why it pays to know how to find motivated sellers and persuade them to choose you. The definition of “motivated seller” has changed since the depths of the economic crisis about a decade ago, when many were trying to avoid foreclosure. There are fewer of these desperate sellers now, but you can still find motivated sellers if you know where to look. “A motivated seller is someone that needs to move out quickly,” explains Sonia Figueroa, a real estate agent with Century 21 Affiliated in Chicago. Some common motivators: • The home has been on the market for three months or more, and the sellers feel impatient. • The sellers are relocating for a job. • The sellers are divorcing. “They’re super-motivated because they want to get rid of each other, get rid of their assets and be done,” Figueroa says. • The owner died and the sellers are the heirs. “They just want to price it to sell it, to divvy up the money,” Figueroa says.
Identifying a motivated seller Here are telltale signs that the seller is motivated: The home is priced to sell quickly, it has been fixed up and staged, and the listing photos were taken by a professional photographer, says Stacy Hennessey, a real estate agent with McEnearney Associates in Falls Church, Virginia. Another sign is when the seller is willing to negotiate. That’s not the norm in a typical seller’s market, where “if you don’t come with a full-price offer or a near-full-price offer with terms that the seller likes, they can say, ‘Thank you, but no. Next!’” says Terri Robinson, a real estate agent with Re/Max Select Properties in Ashburn, Virginia. A motivated seller will make a counteroffer, even to a lowball bid. And sometimes a home’s listing contains the phrase “motivated seller,” or the seller’s agent says the seller is motivated. Tips for buying from a motivated seller • Ask what the seller’s priorities are. Maybe the sellers need a place to live while renovation work on their new house is wrapped up. Or maybe the sellers want certainty that the buyer can qualify for a mortgage.
• Offer to solve the seller’s problem. “From the very beginning, having your agent tell the listing agent that you will be flexible and you want to help them out” can give you the competitive edge, Hennessey says. • Get preapproved for a mortgage. With this you can close faster and the seller is assured that the deal won’t fall apart because of problems getting financing. • Offer flexibility on the closing date. Your offer is more competitive if you can adjust your timing to the seller’s timing, Hennessey says. • Offer a larger-than-usual earnest money deposit. “My sellers always ask me what the deposit is,” says Creig Northrop, president and CEO of Northrop Realty in Clarksville, Maryland. A 1% deposit is standard in Northrop’s market. More than that is “showing sincere interest. So if you can get in the 2% to 5% range of deposits, you’re in really good shape,” he says. • Pay your closing costs instead of asking the seller to pay. • Offer to rent the house to the seller for a limited time. Customarily, buyers charge a daily rate of the mortgage payment divided by the number of days in the month. Your offer will stand out if you don’t charge rent.
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