The Do's and Don'ts of House Buying
September 21, 2019
As you may know (or maybe not if you are a new reader), I am in the current process of purchasing my 4th property. I got inspiration for this blog from a conversation this past week with a coworker of mine. I knew her daughter was looking for similar properties in the same neighborhood that I was looking in so I asked how her first purchase went. Unfortunately, her daughter made some pretty big mistakes that most people would probably make so I decided to write this blog to hook you up with some house buying 101 Do's and Don'ts.
I want to quickly mention that when I purchased my first property, I was required to take first time home buyer classes which I actually found extremely helpful so I highly suggest doing something like this if you are new to home buying. Many of the mistakes my coworkers daughter made were taught during this course. Many banks and private companies hold these classes for free so google to see what is offered in your area.
If you reside in the city of Chicago, there is an organization called "Neighborhood Lending Services," whom financed me for my first time home and I highly recommend them. I will caution you, they are a part of the city of Chicago and as we all know, things tend to be unorganized and take longer when going through city agencies as opposed to private companies so brace yo'self. My closing took 6 hours through this place and I have no idea why BUT had it not been for them, I wouldn't have been able to buy all the properties I have today. Some of the benefits of going through this organization are below:
Purchase or Purchase with Rehab
- Down payments as low as 3%
- No Private Mortgage Insurance (PMI) required
- Qualifying is not based solely on credit score
- NLS assigned Construction Specialist to guide you through the rehab process
- Allows you to buy a home and roll in repairs into one loan
- Potentially lower your monthly mortgage payment
- Allows you to finance major repairs or improvements to your home
- NLS lends on the “after rehab” appraised value of the home
- Qualifying borrowers may be eligible for forgivable loans to help with home repairs
- Has all the perks of programs listed above
- Fixed rate loans that can be used for large or small needs (from new roof to correcting electrical problems, etc.)
- Repayment terms up to 20 years
Alright! Now lets get to the Do's and Don'ts. These are important and can save you tons of money and grief if you follow these guidelines:
DO'S
- Shop around for pre-approvals and compare prices. Do not just get one quote, get multiple quotes from different companies and remember that your credit score is NOT impacted when you are looking for a mortgage lender, you have 30 days to apply to as many lenders as you want.
- Check your credit score to see if you even qualify. I would't recommend going to apply for mortgages if you have no credit or a low score. Instead, check your score and then go from there. I believe anything under a 600 may have a harder time getting financed from a bank.
- Continue to make payments on your bills. Late or missed payments can impact your qualification or even take you out of the running to qualify for a loan. Would you want to lend someone money who is showing they don't pay other people on time?
- Save more than you think you need. You never know what costs can come up with a new purchase and anything can change last minute..
- Pick a good realtor who has knowledge of the real estate industry and can answer any questions or concerns that may arise in the home buying process. Don't just use John because your moms, grandmas friends cousin thinks hes nice.
- Make sure to talk to your lender about any special circumstances with income or qualification questions you may have. Your lender wants your business so they can get creative to get you qualified if you have an open line of communication.
- Get an inspection on your home. This is a must in my book unless you are planning to gut the place and start from scratch. An inspection that shows a lot of issues with the home could save you lots of money because you can choose to back out of the deal (but you lose your earnest money) if you don't feel like dealing with it. Keep in mind, you can renegotiate the price if a lot of big issues are found.
- Always make sure your inspector is licensed and insured and make sure they have favorable reviews or referrals from someone who personally used them.
- DO NOT offer asking price unless there is a bidding war. Do your research of comps in the area. Make sure to check for similar styled and sized houses in the same neighborhood that sold in the last year.
- This is a big one. DO NOT take referrals from your realtor. NEVER get an inspection referral from your realtor and NEVER get a labor referral from your realtor (like a painter or HVAC professional). A realtor could just be referring a family member or friend who may have little to no experience. ALWAYS find your own inspector or contractor. There are tons of sites to find these professionals such as, Angies list, Yelp, and Home Advisor or just ask around to family and trusted friends.
- DO NOT make big purchases. If you go and decide to buy a car or some other type of big purchase during the home buying process then you could end up losing your loan so make sure to sacrifice the extra spending during this time.
- Do not make purchases on credit cards during the home buying process. Remember that you can change your loan approval amount based on your debt to income ratio. If you get approved for a $250,000 house and you found a house for $245,000, then you go and buy new furniture for the new house on credit that cost $5000-7000, you can possibly lose your loan due to having a higher amount debt than income coming in. To be safe, just don't buy anything until you leave the closing table, this way, you know exactly what is left over after all expenses.
- Don't quit your job or change your job. A lender wants to see that you have a solid work history and income coming in consistently.