Ah buying a home, such a leisurely process to find that perfect abode where you'll raise your family and eat pizza on the floor surrounded by boxes like all those lovey-dovey commercials. Yeah right, who are we kidding! The pandemic has sent everyone with a fear of FOMO to make offers on homes up to $100k over asking, plus waiving the inspection! Crazy times indeed. By the way, if you haven't seen the Saturday Night Live Zillow skit, do yourself a favor and watch it, it's painfully true, sobering, and hilarious. Buying a home should never be rushed. Just because interest rates are super low is not the only reason to throw logic aside and jump into homeownership. If you buy an $800,000 "fixer-upper" how long is it going to take you to pay it off? If you're reading this blog, you probably want to reach financial independence sooner than later, so overpaying on a house because you think it's a smart investment isn't a good move. That being said, if the time is right for you to get some more space and settle down, go into it with the right mindset with these tips below. While some of this information is my own knowledge and research from sites such as Bankrate.com, Investopedia.com and Zillow.com, many of these key tips came from one of my favorite books (#5 on the Five Books to Read in my book), which is Save BIG by Elizabeth Leamy. I highly recommend reading it if you plan to shop for a home soon.
1) Put Down a 20% Down Payment: Look. Buying a house is probably the biggest purchase you are ever going to make. Unless you are going to try your hand at flipping and buying up houses with nothing down in an attempt to sell and make more, it makes sense to put 20% down. You’ll save hundreds per month by not paying private mortgage insurance and perhaps qualifying for a better rate or fewer fees. Now, if you are funneling all your savings into your house fund, you’re going to want to beef it up to more than 20% to include closing costs, home repairs, liens, and the list goes on. Plus, don’t forget you always need an emergency fund.
2) Negotiate Closing Costs: Just because there are a bunch of confusing and official-sounding fees on a lender’s formal documents does not mean they are all valid. The application fee, administration fees and the appraisal review fee are just some of the ones about which you can question your lender. You need to understand each fee and its reason. Shop around for title insurance and see which ones have the most reasonable fees. Ask your friends who have recently bought homes how their experience was with their loan officer and what fees they were able to wiggle out of. While negotiating closing costs is typically easier in a buyer’s market, some sellers who have multiple offers may be willing to throw in some cash toward your closing costs to seal the deal sooner than later.
3) Buy a Home in the Winter: Think about all the people with children and how they don’t want to switch them out during the school year, as well as all the people who want to shop when the weather is nice so they can envision their pool parties and what color to paint the bathrooms with the light shining in. According to Save BIG, November to February is ideal. There may be fewer homes on the market and so you will have less choices. However, finding the house you want during these months can save you a great deal on the house if the sellers have less interest in the colder months and are more willing to negotiate on price, contingencies, or closing costs.
4) Get Three Good Faith Estimates (GFE): This is vital. After October 2015, the GFE was replaced by the Loan Estimate and Closing Disclosure Form. The Loan Estimate must be provided to you within three days of applying for a loan. It provides a breakdown of fees, rates, terms, and other information regarding the loan for your home. (Remember those fees I suggested you negotiate?) Then, at least three days before closing, the lender needs to provide you with a Closing Disclosure Form, which is basically the same as a Loan Estimate, except it lists who is paying for what (buyer, lender, seller, etc.). Is there a prepayment penalty? If you can, get these from your banker, one from a broker, and one from a mortgage lender. Compare them side by side to be sure which fees are standard and which may be flexible. For more on this, see: https://www.zillow.com/mortgage-learning/tila-respa-disclosures-trid/
5) Don’t Skip the Home Inspection: While you may want to say no thanks to the warranties offered to you, except the all-important First Year Warranty, the home inspection is crucial--especially if buying an older home. Is there mold where you can’t see it? Are the baseboards under the sink in the laundry room rotting? Is there a leak in the roof that you can’t see if you are touring the home in summer? (Another reason to shop in winter!) It is well worth your investment to know what you are getting into. If there are issues, you can stick it to the seller to pay for the repairs or ask for a credit for underlying issues that may be a problem. By the way, you can also negotiate among different home inspectors!