Acquiring a house is a loathsome, byzantine process filled with unfamiliar terms such as “undiscovered lien”, “black mold”, and “pre-approval”. In even the most patient people with good credit scores, it is bound to create a good deal of stress—especially as you anxiously wait for other people to make decisions. But there are plenty of simple ways to streamline the ordeal, and ensure you don’t lose too much money and hair in the process.
One of the most financially important decisions you will ever make in your life is waiting on the other end of the seller accepting your offer, and the more preparations you make, the better the whole process will be. What you might not be thinking of is just how far in advance you want to start planning.
For example, having good credit can make all the difference in getting approved for a mortgage and getting favorable terms. Starting several months in advance (or, you know, preferably your whole life) on boosting your credit can ensure you are able to be approved for a loan that links up your dream house and income bracket. On top of that, any huge movements of money up to 60 days before you go to get approved can cause annoying, stress-inducing delays. Committing to a process that can easily stretch to 6 months means you are far better-prepared to deal with the inevitable stressful complications.
Rent or Buy
It used to be common wisdom that buying a house was generally a financially sound decision. Even if you ended up paying more in mortgage than rent, the value of the house itself created a solid financial bedrock for you to use as collateral or borrow against. Problem is, that’s not necessarily the case any more. In case you missed it, there was this whole housing crisis thing that happened, and many people watched their valuable nest eggs go underwater. Even before that, this piece of common wisdom was woefully inadequate, as the decision to rent or buy involves a lot of complex factors.
So before you make the decision to go out and buy that dream home, take a look at some handy calculators available online. What may surprise you is that often, especially in cities, it makes a lot more sense to rent for the foreseeable future. The point is, depending on a variety of circumstances, the amount of money you save by making the right choice can easily stray into the hundreds of thousands of dollars.
Shore Up Your Credit
You’ve weighed your options and are giving yourself plenty of time to house hunt and get the necessary procedures in place. The first thing you want to think about is your credit score. Having a high score is one of the quickest ways to insure you’ll get approved for a decent mortgage and the whole process will be that much less stressful.
Hopefully, you’ve been working on improving your credit your entire life. If you haven’t, or if you haven’t done as well as you could have, there are a few quick steps you can take. It’s not going to turn it around overnight, but it’s a good start. Obviously we all know that owning a credit card and paying off the balance each month can help, but here are a few more tips that you might not have thought of, such as disputing old negatives or getting a goodwill adjustment.
Determine a Price and Needs, and Stick to Them
You know how sometimes you go to the store just to get some milk, and somehow you walk out with three bags of Fritos, a Four Loko and a twelve pack of Donettes? One of the most important things to remember when starting your house hunt is that you are looking for milk at $3.50 and nothing else. Now that you’ve done what you can for your credit, realtors recommend that before you actually start looking at houses you should first determine what you can afford and what it is you need and want in a new place. You are there for two bedrooms and two bathrooms for under $250,000. Just milk and nothing else.
If you’re not careful about this, you can end up in the unfortunate situation of being forced to move yet again after you can’t keep up with your mortgage payments. Or worse, you realize you never realized that three people using one bathroom was going to be absolutely untenable. And so in six months you’re forced to undergo the stress of moving again, which is guaranteed to be expensive. By setting a hard goal, you remove a sudden infatuation with the gorgeous Victorian molding influencing you to make a hundred thousand dollar mistake.
Are You Sure You Aren’t Moving Soon?
You have to be thinking at least 5-10 years in the future, and not just about your current housing needs.
Right now you might be single and steadily employed, but five years down the line, will you be married? Will you have children? Are the schools in the area good? How secure is your job? Is the job market in the area you’re buying good enough to accommodate you if you lose your current position? These and more are non-monetary facts that need to figure into the rent vs. buy equation. Talk to neighbors and older peers, odds are some of them made the mistake of not thinking these things through and have valuable advice to give.
Know Your Agent
Unless you are a brave soul with a lot of free time, you are more than likely going to hire a Real Estate Agent. As far as decisions go, bringing on someone knowledgeable and experienced to help guide you through the home-buying process ranks slightly above “knowing not to jump into oncoming traffic.” On top of their familiarity with the process, a good agent will know the market you’re working in and be able to provide valuable comparisons of price and amenities — as well as knowledge of what to look out for.
But there can be a dark side to Real Estate Agents that you need to be wary of. Most agents get around a 3% commission on the sale of the house. That means they have every incentive to get a house bought at as high of a price as possible. The more deals they close at higher prices means a bigger bottom line. And as impartial and customer-focused as many trustworthy agents out there are, keep in mind that they don’t get paid based on customer feedback. The best avenue is to get a referral from someone you know who has an agent they trust — and be wary if it seems like your agent is trying to rush you through the process.
Have Your Financial Ducks in a Row
You’ve hired a trustworthy agent, and you’re finally ready to start searching for your dream home. But then you have the sudden realization that you don’t sneeze Benjamins and cough up diamonds on a regular basis, how in the world are you going to pay for all this? Oh that’s right, mortgages. Applying for and receiving a mortgage is a stressful process in and of itself, but if you don’t have your finances in order before starting the process, you’re looking at multiple delays and possibly the whole application getting scrapped because of harmless errors.
First, be ready to document where any and all income for at least the past two to three months came from. Your tax returns from the past few years are almost definitely going to be necessary. Any sudden movements of money (say, if a generous relative is gifting you money for the down payment) can freeze the whole process without proper documentation. Opening up any sudden lines of credit can also make banks skittish. A good agent should know all the warning signs and what not to do, be sure to run any major changes to your finances past them.
The good news about everything that surrounds buying a house is that you don’t have to do it alone. Yes your best friend — your laptop or smartphone — is here to help. For every step in the process, from getting your finances in a row, to comparing prices, to choosing an agent, there are free Internet services or apps that can streamline the process.
BillTracker and Mint.com can help you get your finances in order. In choosing your neighborhood, there are several sites and apps that will give you comprehensive foreknowledge—from your transit options to the state of the nightlife. Finding a decent agent is as simple as checking local ratings through this obscure tool known as Google, which is also good for finding and comparing listings in your area.
Do Your Homework Before Bidding
If you’re this far in the house buying process by now you’ve likely heard the standard formula for the ultimate price negotiation. You take the asking price, chop off anywhere from 5 to 10 percent (maybe more, maybe less) and then wait and see if the seller bites. The problem is if you grab the number arbitrarily you may be reducing your chances of the seller accepting, and worse, you may be leaving money on the table.
Before bidding, it always pays off to research similar properties in the area. Do your research online, ask your agent, ask any residents you can find in the area, to get an idea of what similar places in the area have actually sold for recently. It’s entirely likely that the seller could be asking for, say, 15% more than the average going rate. In which case you can comfortably undercut the price by an even greater margin. By knowing what the seller will likely get for the house, you reduce the likelihood that your offer won’t be accepted, or that you’ll pay tens of thousands more than you have to.
Keep Calm and Carry On
Between waiting for approval from the bank, waiting to see if your offer is accepted, waiting to see if the inspection came out clean or simply just waiting for one of dozens of things to go wrong, the process is guaranteed to be stressful and nerve-wracking. Even if everything goes smoothly, there is likely to be that constant nagging in the back of your head that maybe you could have gotten a better deal on a nicer place if you’d held out longer.
There’s no avoiding these inevitable stressors, but ameliorating them should be part of your plan. Instead of waiting nervously by the phone, go out for a jog, call up a friend, get black-out drunk and rob a bank, whatever works. Have a close friend or family member on hand to review and come to peace with your decisions. Clearing your mind and doing things you enjoy ensures you aren’t a bundle of nervous energy while making some of the most important decisions of your life.