For most us, a home is one of the most important and expensive things we will ever purchase. It's so much for than just a shopping experience, it’s a physical personification of who we feel we are as a person and represents the kind of life you want to live.
There's a big difference between shopping, preparing and actually buying. Local real estate husband and wife duo, Bruce and Jean Williams, of United Real Estate Raleigh, say that, unfortunately, not enough first-time homebuyers know enough about the process or the importance of being prepared to buy before actually buying a home.
Buyers want to be sure they can afford the home they purchase. Most lenders follow guidelines set by Fannie Mae and Freddie Mac as to what is an acceptable debt to income ratio.
Using the standard of approximately 36 percent with a maximum of 45 percent, lenders will look at how much you make versus how much you are spending on your home purchase along with all your other household debts. This should be used as a barometer () to figure if one can afford monthly mortgage payments on a home.
The key to affordability isn't what you think you can pay, it's what can be comfortably paid under normal circumstances.
"Home ownership often comes with added expenses like maintenance, care, [homeowner association] dues, insurance and other simple things like buying a lawn mower or hiring someone to clean the gutters," Jean Williams explained.
The spending doesn’t stop after you move in, Bruce Williams pointed out that it’s only just begun.
"If you are budgeting more than 36 percent of your income on the mortgage payment, you may find yourself in a situation where you have to make hard decisions between paying the mortgage or paying other life expenses," he said.
The Williams recommend being thoroughly prepared for the cost and purchase process by speaking with a reputable lender before your house hunting process.
"A good lender can give you a preapproval before you start, giving you the exact idea of what you can expect to be able to afford," Jean Williams said. "Although we would all like to live at Pemberley Castle, it’s important to stay grounded when making such an important purchase."
Vincent Barbour, of United Real Estate Raleigh, is also a licensed general contractor and has seen more than his fair share of home problems.
"The state of North Carolina does not require that a home buyer get an inspection," Barbour said. "Even though one is not required, the cost of getting one is so inexpensive that I can’t fathom why anyone would not want to get one."
Buyers can hire an independent home inspector who will provide an independent review of the property. These inspectors are unbiased, licensed third parties that can objectively look at the conditions of the home and give you a professional assessment of its condition.
According to Barbour, inspectors will check everything that can be visibly seen, but can’t check anything beyond a visual inspection.
Barbour explained that inspectors will make suggestions as to what needs or might need repair. Negotiations to determine the cost of those repairs and how to factor those into the purchase are handled by the buyer and seller (or their respective agents).
Barbour also warned to carefully read the report to see what it is really saying.
"Home Inspectors can find something to annotate about any house whether it be new construction or the White House," he said. "Just because they found something, doesn’t mean it’s serious and you should discuss it with the inspector to make sure you truly understand any concerns."
Appraisals are different than the inspection. Lenders rely on the appraisal because it determines the value of the property.
The inspection is usually ordered by the buyer and focuses on finding defects in the home. The appraisal, however, is ordered by the lender and takes place after negotiating a price and after a contract is signed.
Most standard contracts will have verbiage that will allow a buyer to extract themselves from the contract or renegotiate the price if the appraisal returns a value less than the contract price. Appraisals are required by most lending institutions and the buyer should retain a copy of this appraisal even after the purchase of the home.
Geoff Williams, of U.S. News & World Report, pointed out that this is where having the inspection already done can prove very helpful, as well as paying close attention to the housing market and housing trends in the area before agreeing to a price.
A good inspection will help the buyers negotiate a fair price with the sellers that should, in theory, closely align with the appraisal.
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