DIY Network

Buying a New Home Find out what you need to know before purchasing a new home. From "Home Made Easy" episode DHME-123

Guest Matthew Heimer, Senior Editor of SmartMoney magazine, joins host Stephanie Lydecker and explains crucial information for those who are in the market to buy a new home.

advertisement

Matthew shares tips that will be invaluable once you decide to purchase a house.

Buying a New Home—Are You Ready to Buy?

The first step in buying a home is figuring out if you are ready for such a huge commitment. You need to ask yourself important questions:

• What are your personal reasons for wanting to buy? Do you need more room for a growing family, or want to move closer to work?

  Note: These can be powerful motivations to buy a home. It may even make the process easier as many lenders offer loans specifically designed for moderate-income, first time buyers, etc. Moving closer to work will save you money on the commute and helps offset the cost of owning a home.

• Are you feeling pressured into buying a home because reports indicate—"the market will never be this good again?" Most markets go up and down, favoring buyers or sellers. If you cannot afford to buy right now don't worry, the pendulum will swing back in your favor in the future.

• Can you afford a home right now? And can you afford to buy in the community of the neighborhood where you want to live? For a $100,000 home with twenty percent down, you'll only need $20,000. However, you also have to make sure you will be able to carry a monthly mortgage and still pay your bills.

How to Get Organized for Loan Pre-Approval

• The first thing you need is a pre-approved loan. Start by putting your finances in order. Upon being pre-approved you will then know exactly what you can afford.

• Getting pre-approved gives you an estimate of how much you can borrow and puts you in a better place to buy.

• The lender may request all kinds of information. They will want credit data, so make sure you check your credit and correct any problems.

• Have current bank statements available to show how much cash will be available for a down payment and closing costs.

• Make sure you have copies of your last two tax returns plus accompanying Federal W-2 and 1099 Forms.

• The lender may also ask you for pay stubs for the last thirty days.

• Be prepared to offer up any documents that exhibit your assets and debts.

House Shopping 101

• Do as much research as possible before going out house shopping.

• Learn as much about the area you want to move to as possible.

• Get real estate listings from local newspapers, home-sale magazines, and real estate offices so you can narrow down your search. Be aware that houses don't always measure up to their advertisements, so get ready for highs and lows.

• Investigate the community where you want to buy at different times of the day. Speak to neighbors and learn about the local businesses to get a feel of living there.

Make a list of questions to ask when you see any home. These questions should include:

• Why does the seller want to sell and what repairs are needed?

• Are there any noteworthy architectural or landscaping features?

• How long has the house been on the market?

Decide if you need a buyer's agent to find your dream house. An agent will be better able to quickly match your needs to a suitable house. They will know the area where you want to move and they will work with you on finding a home within your budgetary range. Remember they work for you and they will get paid as a result of their involvement. That also makes it easier because they will coordinate every aspect of the transaction.

How Important is an Inspector?

• A good inspector is vital. You don't want to buy a house that looks beautiful but under the surface is a money pit just waiting to put you in debt.

• An inspector evaluates the structure of the house and gives feedback about other systems such as the roof, plumbing, electrical systems, heating and air conditioning units, insulation, doors, windows and more.

• Don't use a friend or family member who is a handyman. Finding an experienced inspector is not too difficult. Talk to friends who had an inspection recently. If you are working with a real estate agent you trust, ask who they recommend. Make sure the agent gives you at least three references—and be wary if she or he tries to steer you toward only one. This could mean others have had problems with that inspector in the past.

• If you find problems make sure you specify any repairs or conditions in the purchase contract.

How to Prepare an Offer for the House.

• The most important thing is not to get caught up in the heat of the moment. You are making a contract to purchase a home that will be binding if the seller accepts.

• In order to have a better knowledge of what an appropriate offer is you must research the prices of comparable homes sold in the area recently. This will help you know the current value of the home.

• If you have chosen to use an agent, have him/her get a list of recent sales of similar properties in the neighborhood.

• Find out the seller's motivation. In such cases as a divorce or relocation, the seller may settle for a lower price in exchange for a quicker sale.

• Never make an offer you cannot afford. You want to make sure you are buying your dream house—not investing in the debt of a nightmare.

Closing the Deal

• At this point you have gone to your lender or mortgage broker that has pre-approved you. You have chosen a loan that works for you, so now everything seems locked in, but there is still a lot to do to avoid last minute surprises. Set a closing date that works for you. If you are renting, set a closing date near the end of your lease to avoid paying unnecessary rent.

• Schedule enough time to move in.

• If you plan on moving on closing day, schedule the closing in the morning.

• Estimate your closing costs. Lenders are required to give you an itemized list of closing costs, so be sure to ask for one. Closing costs are typically seven percent of the purchase price of the home.

• Schedule a final walk through. Make certain that the seller has completed any repairs specified in the purchase contract and has satisfied any contingencies involving the home's condition.