Build a house and you start with the foundations. Seems pretty obvious, doesn’t it? But buy a house and too many people focus just on what they see above ground, forgetting that it’s as necessary to lay good, solid foundations for buying a house as it is for building it. Perhaps, as a prospective home buyer, you see great interest rates and a buoyant housing market, and you’re not convinced of the need for thorough preparation. You could find, though, that you don’t get to buy your dream home, but instead pay the price for not being prepared by losing out to someone who has done the necessary legal and financial spadework.
“The business of America”, declared Calvin Coolidge, “is business”, and you should make it your business to recognise that buying a home is the biggest business transaction you’re likely to make during your lifetime. So, use your head before you lose your heart (and perhaps your money) to that dream home. Complete the preparatory steps before beginning to look at specific homes. It’s only common sense: foundation stone first and keystone last. Well, let’s get down to basics. Let’s see how best to start laying that foundation stone to ensure that you stand the best chance of actually buying the house of your dreams.
One of the most important preparatory steps you need to take is to initiate the loan application process. This will entail a lender running a credit check and drawing up a credit report for a modest fee of $25. You will also need to complete a loan application. All being well, the lender will furnish you with a “good faith estimate” showing the costs of the loan and the approximate monthly repayments. Pre-approval will follow pre-qualification subject to verification of the information you provide.
So why then, is pre-qualification so important?
- The process involves a credit report. This might highlight the need to settle outstanding debts in order to maximize your credit score. Settling any debts, however, doesn’t automatically erase them from your report – it might take months. You might perhaps need the services of a mortgage consultant to get you qualified for a loan. Whatever the problems you may experience with your credit report, the very fact that you will have picked them up early will save you disappointment later
- If all goes well and you get prompt pre-approval, you’ll be able to put in an immediate offer when you find your dream home. Pre-approval stands you in good stead to have a reasonable offer accepted. It’s true that bidding wars have taken place in the northeast U.S, but it still generally holds that pre-qualification gives you leverage over sellers impressed by your pre-emptive action.
- Pre-qualification will help focus your home search. Knowing how much you can afford will be very useful when searching property websites.
So, make sure your finances are in order. Make sure too, that you have a realtor working for you and don’t rely on the seller’s agent. Word of mouth and personal recommendation are the best way to secure the services of a realtor you can trust, and who will act in your best interests.
Finally, having advocated a proactive approach throughout, there is one area over which you have no control and that is the appraisal. Mortgage lenders like to have an appraisal of your prospective home’s market value to protect their financial interests. You might imagine that your interests too, are being protected – surely an appraisal will reveal any real problems? – but you’d be wrong. You might pay for the appraisal but you would be well advised to pay for a home inspection report as well.
Why the extra expense?
- The inspector is independent of the lender.
- The inspection will be thorough taking in inspection of the roof; testing of electrical appliances; checking plumbing and heating and looking for signs of pest infestation and dry rot.
- Having had the forethought to get a home inspection report you will now have the leverage to defer payment of the appraisal fee should you be dissatisfied with the proposed handling of repairs.
One final word of caution. You should apply the same precautionary principles to the home itself as you did to the
homebuying process. Again, don’t let your heart rule your head. Your dream home might require as much hard work – the addition or removal of features, for example – as did laying the foundations earlier in the process.