Buyers

1. If your not paying in Cash it all begins and ends with with your credit. Reports about your credit are kept by the three major credit agencies, Experian, Equifax, and TransUnion. They show lenders your habits. Are you late with payments, have you run into serious credit problems in the past. Lenders are about to gage your patterns. 

You have three different credit scores, one for each of your credit reports.

A low credit score may hurt your chances for getting the best interest rate, or getting financing at all. So get a copy of your reports and know where you stand now.

Try Fair Isaac’s MyFICO.com.

Errors are very common. If you find any, contact the agencies directly to correct them, which can take two or three months to resolve.

If the report is accurate but shows past problems, be prepared to explain them to a loan officer. Don’t worry about this lenders are use to reasonable stores. 

2. Set your budget. Next, you need to determine how much house you can afford. You can start with an online calculator. For a more accurate figure, ask to be pre-approved by a lender, who will look at your income, debt and credit to determine the kind of loan that’s in your league.

The rule of thumb is to aim for a home that costs about two-and-a-half times your gross annual salary. If you have significant credit card debt or other financial obligations like alimony or even an expensive hobby, then you may need to set your sights lower.

Another rule of thumb: All your monthly home payments should not exceed 36% of your gross monthly income. This will help you know like a pro what you can afford. 

3. Line up cash. You’ll need to come up with cash for your down payment and closing costs. Lenders like to see 20% of the home’s price as a down payment. But as low as 3% is doable.  If you can put down more than that, the lender may be willing to approve a larger loan. If you have less, you’ll need to find loans that can accommodate you.

If you qualify, it’s possible to pay as little as 3% up front. Various private and public agencies including Fannie Mae, Freddie Mac, the Federal Housing Administration, and the Department of Veterans Affairs

A warning: With a down payment under 20%, you will probably wind up having to pay for private mortgage insurance, a safety net protecting the bank in case you fail to make payments. PMI adds about 0.5% of the total loan amount to your mortgage payments for the year.

Once you’ve considered the down payment, make sure you’ve got enough to cover fees and closing costs. These may include the appraisal fee, loan fees, attorney’s fees, inspection fees, and the cost of a title search. They can easily add up to more than $10,000 — and often run to 5% of the mortgage amount.

If your available cash doesn’t cover your needs, you have several options. First-time homebuyers can withdraw up to $10,000 without penalty from an Individual Retirement Account, if you have one, though you must pay taxes on the amount. You can also receive a cash gift of up to $14,000 a year from each of your parents without triggering a gift tax.

4. Find an agent/broker: Most sellers list their homes through an agent — but those agents work for the seller, not you. They’re paid by the seller based on a percentage, usually 5 to 7% of the purchase price, so their interest will be in getting you to pay more.

5. Search for a home. We have configured a dynamic search engine for you at www.luxrenv.com . Your first step here is to figure out what city or neighborhood you want to live in. Look for signs of economic vitality: a mixture of young families and older couples, low unemployment and good incomes. 

6. Make an offer. Once you find the house you want, move quickly to make your bid. If you’re working with a buyer’s broker, then get advice from him or her on an initial offer. If you’re working with a seller’s agent, devise the strategy yourself.

Try to line up data on at least three houses that have sold recently in the neighborhood. If you really want the house, many buyers lowball and lose the home. The seller may give up in disgust. Remember, that your leverage depends on the pace of the market. In a slow market, you’ve got muscle; in a hot market, you may have none at all.

Once you reach a mutually acceptable price, the seller’s agent will draw up an offer to purchase that includes an estimated closing date (usually 45 to 60 days from acceptance of the offer).

7. Enter contract. Have your lawyer or buyers agent review this document to make sure the deal is contingent upon:

1. your obtaining a mortgage

2. a home inspection that shows no significant defects

3. a guarantee that you may conduct a walk-through inspection 24 hours before closing.

You also need to make a good-faith deposit — usually 1% to 10%.

8. Secure a loan. Before you made an offer hopefully you have already received a pre-qualification. Now call your mortgage broker or lender and move quickly to agree on terms, if you have not already done so. Get them everything they want as soon as possible.  Today the Loan is the hardest sell in the buying process. 

9. Get an inspection: You should hire your own home inspector. An inspection costs about $300, on average, and up to $1,000 for a big job and takes two hours or more.

Ask to be present during the inspection, because you will learn a lot about your house, including its overall condition, construction materials, wiring, and heating.

If the inspector turns up major problems, like a roof that needs to be replaced, then ask your lawyer or agent to discuss it with the seller. You will either want the seller to fix the problem before you move in, or deduct the cost of the repair from the final price.

10. Close the deal. About two days before the actual closing, you will receive a final HUD Settlement Statement from your lender that lists all the charges you can expect to pay at closing.

Review it carefully. It will include things like the cost of title insurance that protects you and the lender from any claims someone may make regarding ownership of your property. The cost of title insurance varies greatly from state to state but usually comes in at less than 1% of the home’s price.

The lender might also require you to establish an escrow account, which it can tap if you fall behind on your mortgage or property tax payments. Lenders can require deposits of up to two months’ worth of payments.