1. Know your market-Knowledge is power. Check the selling prices of comparable homes in your area. Web sites such as Zillow and Homegain can give you a general idea of what you should expect to pay. You can also do a quick search of actual MLS listings in your area on a number of sites like Redfin and Trulia.
2. Know your budget-See what you can afford. Use Bankrate’s mortgage calculator to see what your payment would be. Look at your budget and determine how a house fits into it. Fannie Mae recommends that buyers spend no more than 28% of their income on housing costs. Go much past 30% and you risk becoming house poor. Although FHA lenders will loan with up to 50% of the income for housing costs, it is not recommended. Find out what your total monthly housing cost would be, including taxes and homeowners insurance. In some areas, what you’ll pay for your taxes and insurance escrow can almost double your mortgage payment. According to the Insurance Information Institute, the average yearly premium can range from $477 in Utah to $1,372 for unlucky Texans.
To get an idea of what you’ll pay in insurance, pick a property in the area where you want to live and make a call to a local insurance agent for an estimate. You won’t be obligated to get the insurance, but you’ll have a good idea of what you’ll pay if you buy. For an idea of what you’ll pay in taxes, Zillow publishes property-tax information for homes all over the country. Just remember that exemptions and the intricacies of local tax law (such as Florida’s Save Our Homes value cap) can create differences between what a homeowner is currently paying and what you can expect to pay as a new homeowner.
3. Know your bottom line at the closing table ahead of time- The upfront costs on closing on a piece of real estate can be large and shouldn’t be overlooked. Closing costs include origination fees charged by the lender, title and settlement fees, taxes and prepaid items such as homeowners insurance or homeowners association fees. You can see what closing costs average in your state by looking at Bankrate.com’s annual closing cost survey. Remember that all the escrow companies, title companies, attorneys, agents and lenders are working for you, the buyer. Don’t be afraid to ask questions about anything you don’t fully understand.
5 tips for buying real estate
4. Talk to reputable real estate agents in your area about the real estate climate. Do they believe prices will continue falling or do they think your area has hit bottom or will rise soon? Are there hidden opportunities that they might know of that are not on the market? A good real estate agent is worth their weight in gold. See who is doing a good amount of business in the area and seek them out.
5. Remember to look at the big picture.-While buying a house is a great way to build wealth, maintaining your investment can be labor-intensive and expensive. When unexpected costs for new appliances, roof repairs and plumbing problems crop up, there’s no landlord to turn to, and these costs can drain your bank account. Look at a property with an objective eye and judge what the costs will be over time.
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