Prepare to Buy your first Home
In the title I wrote ‘first home’ but these suggestions really apply to every buyer. Most times buyers are told to simply get loan approval for a certain amount and go for it. Here are 4 things buyers can do to educate themselves before making an offer.
1. Have the Realtor or Lender go over in detail a real Buyers Settlement Statement. Of course the personal data is blacked out. It is important to go over this statement because so many times the buyers are stunned at how many fees there are on a Settlement Statement: Title Fees, City and County Transfer Fees, Property Taxes, HOA transfer and other fees, Lender Fees. Flood Certificates, Courier Fees, Notary fees and more. The fees are legitimate but still overwhelming to most buyers and this form should be understood when the buying process begins.
2. Homeowner Insurance. Many times loans are delayed a day or two because the homeowner insurance is not completed and in place. Shop around because this is an area where prices can be from low to high. The lender will have insurance requirements on what is acceptable.
3. Talk to a CPA or tax preparer or study on line if you do your own taxes. What you want to know is how the purchase will affect your income taxes. Suppose a person is single and files Single with 1 withholding and at the end of the year no taxes are due. They have all been paid from the withholding tax. In our example the buyer has been paying rent of $3500 and the new mortgage payment with taxes, insurance, and the mortgage payments comes to $7,000. You can write off taxes up to a $750,000 loan amount and you can write off the mortgage interest. I have not done a math example for this but the idea is what I want to express. Suppose you discover that the $3500 actually comes to the same number as a $4800 mortgage payment because of the deductions. (total). You were taking 1 deduction for the withholdings… Now the CPA may show that you can increase your cash to you by changing the withholding from 1 to 5 and you end up the year with no taxes to pay out and you have gotten more cash each month for living expenses.
4. Comfort level. Using the same borrower above. The borrower has been paying $3500 a month rent and qualifies to pay $10,000 monthly for a mortgage. That is quite a payment shock even if you qualify to pay that much. Determine a comfort zone payment that fits your lifestyle and spending habits. It can be very wise to purchase for less than you qualify for.
There are a lot of things to consider when buying but in the pre-approval process it is wise to consider these questions rather than simply getting a pre-approval.