You’re a first-time purchaser and are excited about pursuing your “American Dream” of homeownership. You are ready to begin searching for your next place to call home. But have you done your homework?
The first and most crucial step is to go to a lender to see what amount of a mortgage that you will qualify for. Email or bring with you your most recent tax returns, W-2’s or 1099s (if self-employed) and have them do a complete credit profile.
After the process is completed, you will receive the most important piece of paper, your commitment letter with no conditions except subject to an appraisal of the property. This would be the most prudent path to take as our inventory is historically low and those buyers that procrastinate are either not ready to “go to war” with the other competition of buyers or are losing deals.
There are those who are getting outbid on homes, where emotion and need are combined to make the winning bids sometimes way above the asking price. My advice is not to succumb to getting too emotional in your search and purchasing and not let your common sense and critical thinking go by the wayside.
If it makes sense in the brain, it will make sense in your pocketbook!
In many cases, affordability is being sacrificed and people are stretching their financial capabilities to a point where there could be a major risk factor that might come into play in the future.
One should look at their job and/or business and make sure that their income will continue to be consistent, so as not to have to worry about not being able to pay and then may need to do a short sale, where the value of the home becomes less than the mortgage or worse go into foreclosure.
Those who are most in jeopardy are the ones that are putting down less than 10%. It will take several years for inventory to become more normalized to reach 6-7 months. Also, most important is guessing if and when interest rates will moderate lower.
If home values were to decrease sufficiently enough due to a pullback in demand in the future there would be no equity build up and if there were a loss of income, then there might be problems paying the lender.
The first nine years are mainly interest payments on your mortgage, so there is very little equity buildup. Even if rates were to go substantially lower, refinancing may not make a lot of sense as you would have to determine how many years it would take to break even with the lower interest rate to pay back the initial cost of refinancing.
But also consider that you would be starting all over and the next 9 years of your new mortgage would be mostly interest payments once again. No one has a crystal ball or can predict what may or may not happen in the future.
My professional opinion is to always buy within your financial comfort zone and don’t go overboard and get emotionally involved in purchasing, especially if this is your first or even move-up purchase.
Whether it is a single or multi-family, townhome, condo, or coop, do your due diligence and stay grounded when searching.
If you have children or plan to have them, buy the best school district that your budget allows you to; even if you may have to travel further to work, assuming you have to commute to an office. If you work from home then you will have more flexibility in choosing a town.
Hire a broker that has many years of knowledge who will educate and guide you through the sometimes tumultuous, complicated, and stressful process and not try to sell you the favorite flavor of the month.
Consultative selling provides a stronger methodology as a broker must do as much listening as possible and ask the necessary and required questions to be able to assist you in your journey to find your next place to call home. He or she must also be caring enough to address your specific “needs and wants” and stay focused on the end game of finding that special first or moving up home.
Make sure you hire a qualified, licensed, and insured home inspector as well as a qualified real estate attorney. There is a multitude of variables, problems, and issues that will always come into play that will need to be strategized and solved to finally get to the closing table.
Stress can be a real critical issue, so do your best to keep your emotions in check. Use your common sense when making your purchase and stay within your budget and what you are qualified for financially. Better to be safe than sorry.
Philip A. Raices is the owner/broker of Turn Key Real Estate at 3 Grace Ave Suite 180 in Great Neck. For a free 15-minute consultation, value analysis of your home, or to answer any of your questions or concerns he can be reached by cell: (516) 647-4289 or by email at [email protected] or via https://WWW.Li-RealEstate.Com