Sub-primes may be history, but you’ll probably still be shown homes you can’t actually afford. By getting pre-approved as a buyer, you can save yourself the grief of looking at houses you can’t afford. Ask your real estate agent for a list of local lenders that they know and trust if you are not sure who to use. You can also put yourself in a better position to make a serious offer when you do find the right house after you get pre-approved. Unlike pre-qualification, which is based on a cursory review of your finances, pre-approval from a lender is based on your actual income, debt and credit history. By doing a thorough analysis of your actual spending power, you’ll be less likely to get in over your head.
Choose your mortgage carefully. Used to be the emphasis when it came to mortgages was on paying them off as soon as possible. Today, the debt the average person will accumulate due to credit cards, student loans, etc. means it’s better to opt for the 30-year mortgage instead of the 15-year. This way, you have a lower monthly payment, with the option of paying an additional principal when money is good. Additionally, when picking a mortgage, you usually have the option of paying additional points (a portion of the interest that you pay at closing) in exchange for a lower interest rate. If you plan to stay in the house for a long time—and given the current real estate market, you should—taking the points will save you money.
Do your homework before bidding. Before you and your real estate agent make an offer on a home, do some research on the sales trends of similar homes in the neighborhood. Consider especially sales of similar homes in the last three months. For instance, if homes have recently sold for 5 percent less than the asking price, your opening bid should probably be about 8 to 10 percent lower than what the seller is asking. This is not always the case, however, and you should always ask your real estate agent to show you these comparisons straight from the MLS and follow their advice on the amount of the initial offer and throughout the negotiation process since they are your expert on local market trends.
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