A step-by-step summary to hack the home buying process.
Money Girl
277 MG How to Buy a Home in 10 Steps, Part 1
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Thanks for joining me on the Money Girl Podcast. I'm Laura Adams, the author of Money Girl Smart Moves to Grow Rich. If you're ready to become a homeowner, now's the time to get a great deal and finance it with an inexpensive mortgage. Though making such a big purchase can seem daunting, I'll show you how to buy a home in 10 simple steps. We'll cover the first five today and the next five in part two of this series. Five years after the real estate market collapse of 2007, the vast majority of consumers still believe that home ownership is just as important as it was before the crash. Following the 10 steps in this two-part series will help you save money and time when you're ready to buy a home. Step number one, build your credit. Unless you can pay all cash for a home, you'll need to finance a portion of the purchase price with a mortgage. How do you qualify for a mortgage? Well, home lenders take several factors into consideration, like whether you have enough steady income to afford a monthly payment. The amount of debt you already have, a much cash you can put down, the market value of the property, and your credit score. Without a good credit score, you'll either be turned down for a mortgage or charged a high interest rate. Paying just 1% more interest than you absolutely have to can cost you over $45,000 on a $200,000 30-year mortgage. If you invested that money instead of paying it to a lender, you could parlay the savings into over $150,000 with just a moderate rate of return. So remember that if your credit isn't in good shape, you're not ready to buy a home. As soon as you get the itch to become a homeowner, get copies of your free credit reports and review them before a lender does. Most consumers have errors on their credit reports. That's a problem because your credit scores are calculated using the information in your credit reports. So visit annualcreditreport.com and get free reports from each of the three nationwide credit agencies, which are Equifax, Experian, and TransUnion. Review them carefully and dispute any errors you find, like accounts that are not yours, incorrect loan balances, or invalid late payments, and get them corrected right away. You can watch a step-by-step video tutorial on how to pull your credit reports and correct errors in my free credit score survival kit. You'll actually get to look over my shoulder as I pull my own credit report. To download this free tutorial, just visit smartmoves2growrich.com. Step number two, decide what you can afford. Once your credit is in tip-top shape, decide how much you can afford to pay for a home. Most lenders require a minimum down payment of five to ten percent. You may qualify for less depending on your situation. However, if you can put at least twenty percent down, you'll get some extra benefits, like a very competitive interest rate and avoiding the added expense of private mortgage insurance. The general rule of thumb for many years has been that you can afford a mortgage up to three times the amount of your annual household income, but that guideline is way too general to be taken as a firm rule because every home buyer has unique financial circumstances. You have to evaluate how the cost of a home fits into your overall financial goals. For instance, if buying a home means that you'd be left with zero savings or that you couldn't save for retirement, consider waiting or perhaps buying a less expensive property. In addition to the mortgage payment, money down, and maintenance, many first-time home buyers don't think about expenses like property taxes and homeowners insurance. There are also a variety of closing costs you typically have to cover as well, like the appraisal, inspections, title search, attorney's fees, and anything else that's customary in your area. All of these expenses have to be considered in your budget. I love learning and anything that makes learning easier. If you're a parent and your child needs some homework help, then Ixcel is a right for your family. Ixcel is an online learning program for kids covering math, language arts, science, and social studies. Ixcel has interactive practice problems for topics from pre-K to 12th grade and everything is organized by grade and subject. As kids practice, they get positive feedback, awards, and explanations for wrong answers. Ixcel figures out what your kids need more help with and recommends more topics to practice. There are videos, lessons, sample problems, and learning games, too. One subscription to Ixcel gets you all subjects and all grade levels. Membership started just $9.95 a month. 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If you're ready to start home shopping, don't get sidetracked with online searches, open houses, or tours with real estate agents, until you've set a price range for what you can afford and have a mortgage pre-approval. A mortgage pre-approval is a written commitment from a lender to give you a loan for up to a certain amount. But remember, just because a lender wants to give you a big fat loan doesn't mean that it's wise to take the full amount. Go back to what you decided you can afford and stick with that number. Getting pre-approved is really important, because it saves you the disappointment of falling in love with a home that isn't in your price range. Plus, it gives you a leg up when you find the perfect place and make an offer. That's because a seller will know that you're serious, maybe more serious, than a competing buyer who is not pre-approved to buy. Step number four, meet with a real estate professional. Now that you have a mortgage pre-approval in hand and know your price range, it's time to meet with a real estate professional. Find out if your friends or family can recommend an agent for you, or search sites like homevisor.com, homegain.com, and zillow.com. If you forget these, just visit the Money Girl page at quickanddirtytips.com and look for episode number 277, called "How to Buy a Home in 10 Steps, Part 1." In a nutshell, here's how the real estate industry works. Most agents earn commissions that are paid by sellers. That's great when you're a buyer because you can work with a professional for free. However, remember that an agent generally represents and must protect the best interest of the party who pays them. If you want representation as a buyer, you have to work with an exclusive buyer's agent. They could charge you directly, or they may split a commission with the agent who's paid by the seller. A buyer's agent has the same access to homes listed for sale that a seller's agent does, but they represent your best interest in negotiations. Find a few agents who specialize in the area where you want to live and arrange to interview them face-to-face or by video chat. Ask questions about how they're paid, whether they represent buyers or sellers, how they research available properties, how long they've been in the business, whether they work with for sale by owner properties, and what they think about the local real estate market. Choose an agent that's knowledgeable, personable, and seems like the best fit for you. A good agent acts like a project manager and a psychologist in one. They help you navigate through a myriad of tasks and negotiations that have to be completed before the seller hands you the keys. You'll learn more about these in part two of the series. Step number five, tour listings for sale. When it comes to buying real estate, you've heard the mantra, location, location, location. If you don't know exactly what neighborhood you want to live in, your agent can recommend the best places for your budget. Websites like trulya.com and neighborhoodscout.com are excellent resources for information about demographics, crime, and the best schools. Even if you don't care about things like living in the best school district or being close to public transportation, they make all the difference in the price you get when you sell the property down the road. As you tour properties, take pictures and notes so you remember all the details. Your real estate agent can give you information about property taxes, association dues, sales history of the property, and anything else you need to know. Finally, remember that the listing price is just a starting point for negotiations. In part two of this series, we'll cover steps six through ten so you know the right way to make an offer, get it accepted, and end up smiling at the closing table. Also, remember to download the free credit score survival kit video tutorial at smartmoves to growrich.com. I'm glad you're listening to Ching. That's all for now, courtesy of Money Girl, your guide to a richer life. MUSIC Nobody does selling better than Shopify, home of the number one checkout on the planet. The shop pay feature even boosts conversions up to 50%. So if you're into growing your business, your commerce platform better be ready to sell wherever your customers are scrolling or strolling. Upgrade your business and get the same checkout top brands like Allbirds use. Sign up for your $1 per month trial period at Shopify.com/podcastfree. All lowercase, go to Shopify.com/podcastfree to upgrade your selling today. (bell dings)