Wednesday, April 25, 2018
Buying a Home in a Red-Hot Real Estate Market
We are living in a crazy era when it comes to buying a home. The experts are having trouble understanding what is going on and predicting what will happen next is impossible. What does the average person with little experience in real estate do at a time like this? People still want to buy homes, but a lot of them are being shut out of a market that is ever changing. What you need is the right information to get you through the home buying process. Today I am going to give you 10 tips to help you navigate buying a home in an insane real estate market. Sometimes when the winds are blowing strong, you just need to batten down the hatch and get back to basics.
1) Stay calm
This seems simple, but for some reason, hysteria breads more hysteria. It can be easy to get caught up in the hype surrounding a red-hot real estate market. Take all the emotion out of your decision and revert to straight business planning. Does the move make business sense, meaning it is the right move financially? Would you have done this move a few years earlier if all was the same and the market wasn’t as hot? Are you going with your gut, or with your head? Remember that snap decisions are usually flawed. Take some time and really think out your next move.
2) Secure funding
A common route people take is looking for a home, then trying to secure funding for that home after they picked it out. Big mistake. Secure the funding for a home before you pick it out. This will allow you to pick out a home with confidence and not get dragged into viewings of homes you cannot qualify for. Talk to your mortgage specialist about what range you fit in and gather all the documents necessary to be approved. These will include Notice’s of Assessment, T-4’s or income verification, credit reports, and much more. Once you have this nailed down you can confidently look for a home.
3) Secure the down payment
Many people do not realize the importance of having a healthy down payment when buying a home. Let me break it to you, have a few thousand dollars laying around is not suitable for a down payment. That’s called first and last in my books. Here’s why. The size of your down payment will determine how much house you can buy. It will also determine what interest rate you get. It will also determine how much you need to borrow for your mortgage. Having a smaller down payment, under 20%, means you must get mortgage loan insurance. This raises the interest rate on your mortgage. Most importantly, it will determine what your payment must be every month for your mortgage. This can make or break you if you don’t have the monthly cash flow to service this payment. Think long and hard about your down payment, it is vitally important.
4) Go in firm
I have mentioned this already in the post to a certain degree. Securing financing means that you don’t have to have the condition of financing when you put in an offer. Having savings means that you do not have to use the sale of an existing home to fund the purchase of a new home, so you can waive that condition. Having savings also means you can furnish the home with appliances if need be, thus lowering the offer you make or not if need be. The moral of the story is to get your ducks in a row, so you can go in with the least amount of conditions possible. How people get burnt is when they go in firm yet have not settled the conditions on their own end. They are not prepared for the fallout and then have to scramble. Being prepared pays off.
5) Make a budget
Pretend like you already have the home. Put together some hypothetical mortgage payments, along with the taxes, utilities, and maintenance costs. See where that leaves you at the end of every month. It is better to do that beforehand then find out what you can actually afford afterward. Your lender will often allow you to get a mortgage that fits on paper but might not fit your lifestyle. Only you know what you have to live with every month and therefore you have to be the one preparing for that. Will you have to make some sacrifices? Will you have enough savings to weather financial storms moving forward? Just because you saved money to buy a home, doesn’t mean you should stop saving once you get it. Make sure you have a budget that continues what you were doing before you bought.
6) Emergency funds
I sound like a broken record, but an emergency fund is vital, especially when you buy a home. The costs that will spring up are ridicules. Broken water heaters, new furnaces, a new roof, landscaping, crack in the foundation, the list goes on and on. When you are saving for the down payment, make sure you go a little bit further and save for a home expense emergency fund. I think this amount should be able to cover the most expensive thing that can happen to your home. This would entail having over 10K in this fund. Remember, you don’t want to have to go into debt to get a new water filtration system or replace the stove. Get on top of that before you buy.
7) Think about coverage
I know talking about insurance is not fun, but it is necessary. You want your family to stay in the home should anything happen, so life insurance is necessary. Mortgage insurance offered by the lender is inferior to personal coverage, so get your own policy. It is often cheaper as well. Also, think about how you would pay for your mortgage should one of you get sick or hurt. Disability coverage can keep you in your home and it is illness or injury that is the number one cause of people losing their home. Insurance does cost money every month, but not being able to make monthly payments could cost you everything. It is the prudent thing to do.
8) Don’t go overboard
I mentioned earlier that lenders will often give you a mortgage on a house you cannot truly afford. It is a natural instinct to fall in love with a house even if the price is out of your range. You may want all the bells and whistles, but you might not be able to afford that. You also do not want to be caught in some sort of bidding war that brings you out of your range. Again, the hysteria may cause you to do things you wouldn’t normally. Look at it as a business decision and stand firm on what you want. Do not go over your set out price and do not let someone tell you what you can afford. There are plenty of houses out there and a good agent will help you find another one that fits your goals and needs.
9) Hire the experts
Speaking of agents, having a trustworthy real estate agent is worth its weight in gold. They will help you navigate your way through the jungle of finding the right home. They are paid to put you in the right place, so use their expertise. Having the right mortgage specialist is important too. They can help you get the right financing that fits your budget. Also, having a financial advisor that will do mortgage planning with you is important. The house is only an asset if it fits into your overall financial plan. Your advisor will make sure the home is not a liability. These people are paid based on your success, so find ones you can trust and you will be very happy with the home buying process.
10) Get back to basics
When things get complicated, you often get screwed. Make sure that everything you are doing makes sense. Ask a lot of questions. Challenge the advice you are given. It is not being rude, it is being precise. This is your future, your investment, your life. Mortgages used to be written on pieces of paper and real estate deals were done with a handshake. Things do not need to be complex for it to be a great deal. The home you want, with the right mortgage, built into the right financial plan. Often, we get the house and figure everything else out after. I look at buying a home like having kids. You don’t want to have a kid and then start thinking about being a parent. That thought should have crossed your mind beforehand.
Being in a red-hot real estate market doesn’t mean you have to lose all judgment and make snap decisions. What it does mean is that you must be prepared for the challenges that will arise. Having the right information and the right people by your side will help you get the best deal possible. Take a step back and focus on what’s important. The biggest investment you ever make should be done with caution, care and most importantly, confidence.
“You don’t want to have so much money going toward your mortgage every month that you can’t enjoy life or take care of your other financial responsibilities.” – Dave Ramsey
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