Published at Friday, February 15th, 2019 - 14:57:14 PM. Dream Home. By Austin Lagi.
How to Own Your Dream Home : You start dreaming of how wonderful it would be to own a home and start looking around the internet at homes. Its an admirable goal with lots of great benefits; building equity, improving your credit score, potential income down the road, but first and foremost its a place that you can call your own and build precious memories with your family. The distance between your dream home and owning a home is called action Dreaming about owning a home is the first and most important step, but buying your first home can be one of the most exhilarating and stressful moments of your life. Armed with the right information, you can shop for a house, apply for a mortgage, and close the deal with confidence. Where to Start The most important thing to do before buying a home is to make sure that its the right time to buy. Generally owning a home for at least 5 year, pays of financially (Capital Gains tax benefit, this is for another post). You should play around with a Rent vs. Buy Calculator The Steps Step 1: How Much House Can You Afford? I know its a touchy subject, but its an important one. If you stretch your budget to buy your primary residence that you can barely make payments on, it becomes a liability. You should want to buy a home, because you want a home, not as an investment. Only buy a house that you can afford today! As a rule of thumb try to keep your housing expenses (Mortgage, Interest, Property Taxes and Home owners insurance) at about 30% of your income, if you spend much more than that you risk the chance of finding it difficult to cover your monthly expenses. Step 2: Get your Financial House in Order. Imagine, you have been searching for the house of your dreams, you finally found it, you go ahead and make an offer, the next day you go down to your bank to apply for a mortgage only to find out that you are not financially qualified to buy it. Your credit score is too low. This could have been avoided with a little advance preparation. Check Your Credit Score- It should not come as a surprise but getting a mortgage requires a good credit score. This would be a good time to look at your credit score. You can do so at credit karma or annual credit report both are free to sign up. Be sure to check for errors, this could include accounts that dont belong to you, wrong addresses, and incorrect payment status. Lets say you applied for a store card, and the sales clerk miss spelled or gets your address partially correct on your application, it can be reported as having an alias which can be detrimental to your credit score. Errors can take a few months to correct so get a head start. A fast way to improve your score is to pay down any credit card balances that you have and avoid using them for a few months before you apply for a mortgage, also avoid applying for a new credit card or loan until you have the keys to your new home. When applying for a mortgage with a spouse or a partner even their credit score and history will be checked. Save Cash for a Down Payment and Other Expenses Having a good credit score is just part of the process. Typically down payments are 20% of the purchase price. Even if youre able to secure a Federal Housing Administration loan (FHA loan - for first-time home buyers only), youll still need to have at least a 3.5% down payment some loans will require a 5% down payment. Lets say you have a Mortgage $500,000 Typical down $100,000 ($500,000 x 20%) FHA 3.5% down $17,500 ($500,000 x 3.5%) FHA 5.00% down $25,000 ($500,000 x 5.00%) The more money you put down the less the loan amount you will have to take out. Typically banks only lend about 80% of the purchase price of the home. As you are saving money for the down payment avoid the temptation to invest it in stocks or other investments. You are saving that money for a specific reason, keep it that way! Open an online savings account with banks such as Ally Bank where they give you about 1%. Other expenses can be and are not limited to, fees for appraising your home, checking your credit score, preparing your mortgage documents (more about that below), if you are buying points to reduce your interest rate (for another discussion). Step 3: Gather your Documents And Get Pre-Qualified. When applying for a mortgage you can be sure that the banks will go over your financial records with a microscope. Typically you will need the following documents 1. W-2s (or 1099 income statements) for last 2 years 2. Recent bank Statements 3. Federal Tax returns for last 2 years 4. Recent Paystubs and other proof of income 5. Proof of investment income if any. Get pre-qualified for a loan. This can usually be done online or by calling your bank. When you get pre-qualified for a loan, the bank takes an initial look into your financials and based on that they tell you whether you are qualified or not for the loan amount you are requesting. This is a free and non-binding process which shows the seller that you are a serious buyer. This will give you an idea of how much house you can afford. Getting pre-qualified is not the same as getting the loan approval that process requires a more in depth look at your financials by your bank. Step 4: Applying For a Mortgage. The process of applying for a mortgage can be a little intimidating, as stated above the bank will look at your finances with a microscope that said it is a process that is required for home ownership. In order to better understand the mortgages we first need to look at the 4 common mortgage types Fixed Mortgage- Typically a mortgage for 15 to 30 years (30 years being the most common) and as the name suggests a fixed interest rate. Bank rate is a great place to check out the interest rates for your area. Adjustable Rate Mortgage- is a mortgage where the interest rate fluctuates with the market and is typically 5 to 10 years long. The interest rate on this type of loan adjusts annually. Balloon Mortgage- is a mortgage where you make small payments (interest only) for a fixed number of years and then pay the rest of the sum in one lump sum. Stay away from them! FHA Loan- is a mortgage issued by federally qualified lenders and insured by the Federal Housing Administration (FHA). They are designed for low-to-moderate income borrowers who are unable to make a large down payment. Be mindful of fees that the banks or mortgage broker may charge, these are not separate from the loan amount. As stated in step 2 there can be fees for the home appraisal, checking your credit score, preparing documentation, Private Mortgage Insurance (PMI) if your down payment is less than 20%. In some cases, there may be an option to buy points at closing to reduce your interest rate. 1 point is equal to 1% of your mortgage amount (or $1000, for every $100,000). In order to figure out if paying down your points is a good way to save money on your mortgage, you will need to figure out how long you need to stay in the home to save the amount you paid upfront to buy down the rate in your monthly payments. For instance, if you paid 2% or $8,000 to reduce your rate to 4% (from 6% the bank was initially asking) on the $400,000 loan, the monthly payment on the 30-year fixed mortgage will go from $2398.20 a month to $1909.66 a month. It would take about 17 months to see the $8000 come back in savings. $2398.20 (payment at 6%) -$1909.66 (payment at 4%) = 488.54 * 17 (months) The only wrong way to get a mortgage is to walk into your local bank, ask for a loan officer and accept whatever rate they give you without ever shopping around You should compare mortgage rates online at Bank Rate, Lending Tree, your bank, your local credit union, and a mortgage broker. Start the mortgage shopping process sooner rather than later, you may be able to get better rates, and have the peace of mind that you did your due diligence. Step 5: Choose A Great Realtor. Not all realtors are created equal. It is very important to have a great realtor on your side. Interview a few and see whom you are most comfortable with. They are there to guide you and serve you during this process. When you go to an open house, never tell the agent you love the house, or give them any kind of information about how much you are willing to pay for the house. That agent represents the SELLER, not you! There are 2 types of agents that you can work with. Buyers Agents- is an agent who represents you, and only you in a real estate transaction. They agree to only represent you and your best interest. (They have a fiduciary duty towards you, meaning they have your best interest in mind) Dual Agents- This type of agent is an agent that may represent the seller as well as you the buyer. This information has to be disclosed upfront when you decide to hire them. Both you (the buyer) and the seller have to agree to this. They cannot provide you with a fiduciary duty because they represent both the seller and you the buyer. Not to say that this cant work, but to avoid any conflict of interest, what most real estate agencies will do in this type of situation is they will assign 2 different agents, one to represent you and another to represent the seller. This is industry standard. Step 6: Start your House Hunting Buy Land, they are not making it anymore -Mark Twain This step is probably the most fun for most people and stressful for some but with a little planning and advance preparation it can be truly enjoyable. 1) Window Shopping- If you want to browse homes in the neighborhood that you are looking to buy, the two main sites to browse are Zillow, Trulia. They will give you an idea about what different types of homes are there, the different layouts and a general idea about the area. 2) Attend Open Houses- Attend any open houses in the area you are looking to buy. This will give you a better idea of the layout(s) and amenities possible in a home. Now that you have an idea of what you are looking for in a house, its time to sit down and do some homework. The Housing and Urban Development (HUD) website has a great PDF resource, you can follow this link to their site and click on Wish List under Step 5. Make sure that you and your partner are on the same page, before going moving on. You can take this checklist and share it with your agent (they should ask you similar questions when you sit down with them). 3) Decide on a Realtor- Just like you would do some research on a doctor before you go visit them, do some research on your agent. A good agent should listen to you and your needs and be able to create a customized database of potential houses for you to look at. They are there to guide you. One of the many questions that come to mind when hiring an agent is Will I have to pay for their services? Typically its the seller that pays the sellers and buyer agents commission. Step 7: Making an Offer/Counter Offer Once you have found the home of your dreams, its time to make an offer. Talk to your realtor about what is a fair and reasonable offer. If you keep making an unreasonable offer, you are just setting yourself up for disappointment. Always have a figure in mind of the maximum you are willing to go, and be prepared to walk away if you need to. Buying a home is as much an emotional decision as it a rational one, dont let your emotions cloud your judgment. There are 3 possible outcomes of making an offer 1) YES- Skip the rest of Step 7 and go straight to Step 8 2) NO- Something that we dont like to hear, but its not the end of the world, if you get a no, make a counter offer, and see what happens. 3) Counter offer- Unless you lowballed your initial offer, the seller will usually counter offer, which you can either accept, reject or counter the counter offer. This Tap dance will go on until both you and the seller agree on a price, or one of you decides to walk away. Step 8: Closing on the House Once you and the seller have verbally agreed on the price of the house, its time to put it in writing. The purchase contract essentially lists everything you negotiated verbally on paper. Typical clauses you can expect to see but are not limited to the following 1) Finance Terms and Conditions 2) If you agreed on the seller paying certain closing costs, they should be listed 3) Who is paying specific closing costs 4) Home inspection 5) Fixtures and Appliances (what the seller is leaving and what they are taking) 6) Closing date 7) Contingencies- Sales of existing home, mortgage approval 8) Legal description of property 9) Down payment amount information 10) Disclosure of lead paint (required for homes built before 1978) 11) Home warranties and warranties on appliances. Step 9: Final Walk Through/A Home Inspection One of the most important points in the whole process is the walk through. This is crucial and is done after you have signed a purchase contract, a lot can change from when you accept an offer and the closing; infestation, weather related damage, vandalism, the seller removing appliances that you had agreed to keep. Never ever skip this step, and always hire a reputable company to perform a home inspection for you. Make sure you hire someone that is licensed, your agent may work with someone, but its always best to do some homework beforehand. Your agent should be there with you during this process. The sellers agent should provide you with a sellers disclosure statement before the inspection. If they dont then there should be a $500 Credit on the purchase price of your home in NY State. Make sure that any modification to the house were done with a permit, if not you could be liable for bringing the house to code should you decide to remodel later. Some of the things to look for in a home inspection are 1) Foundation of the house 2) Drainage issues 3) Roof 4) Exterior 5) Attic 6) Interior leaks 7) Basement 8) Electrical & Plumbing 9) Appliances 10) Heating & Cooling Systems 11) Any Odors Step 10: Shop for Home Owners Insurance/Finalize Loan Approval Assuming that the inspection goes well and you decide to move forward with the buying process, you will need to shop for home owners insurance. Your bank will require you to have this for the loan approval. The cost of homeowners insurance is typically rolled into your mortgage payment. At this stage your bank or mortgage broker will be finalizing the loan, and may ask you for additional documents. The Big Day Closings usually take place at a title companys office. Because youre a buyer, youre going to have a huge stack of papers to sign and initial. To ensure that the closing goes smoothly, make sure to bring the following items: 1. A certified or cashiers check in the exact amount agreed upon. 2. You will have to pay the down payment, plus the closing costs - usually 3 to 5 percent of your home purchase price minus any earnest money you deposited. 3. The closing agent will tell you whether you need one check or two and to whom they should be payable. 4. Proof of home owners insurance. The closing agent needs to see proof you have home owners insurance in effect on closing day. 5. A valid drivers license or passport as proof of ID. 6. If you are a first time home buyer, your attorney and your agent, they understand the process and represent your interests. 7. Purchase and Sales Contract. Just in case you need to double-check a detail against closing costs. Congratulations! Youre a Homeowner Youve crossed all the Ts and dot all the Is and the closing agent has handed you the keys to your new house, go out and celebrate!
Visualise Your Dream Home : I devised this exercise some years ago when I needed to find a new home. Id just attended a workshop on creating your own reality and was greatly taken with what Id learned so I carefully noted down everything I wanted in my dream home and then set about trying to find it. No one was more astonished than I when a few weeks later I was offered a house to rent that not only ticked every box -- when I checked my blueprint I saw I had inadvertently written down telephone line twice, and the house had two telephone lines running to it. This is a powerful exercise! The technique can be used for a range of possibilities but, for the purposes of the illustration, Ive chosen a dream home. You will need some paper and a pen or pencil and, initially, an hour or so of uninterrupted time. But this is an on-going exercise, something you can keep adding to until youre completely satisfied with the end result. Whats crucial to success is identifying the limiting beliefs most of us hold that we cant have what we want, that we dont deserve it, that its not possible. Thats the hard part -- but help is at hand. Start by writing My Dream Home in the centre of the page and drawing around it a circle, a heart, whatever takes your fancy. Now youre going to sketch in lines leading out from the centre, like a star burst, and write down all the things you want in your dream home. You can start by writing down basics like electricity and gas supply, mains sewerage, telephone line, or you can assume those are going to be there anyway. Are you going to own this home or rent it? Write down things like freehold or good landlord and affordable rent. Do you like sleek and modern or something more traditional? Is it important that your home is well insulated, has central heating, double glazed windows? Write that down. How many bedrooms will it have? And why do you want that number? If you want one as an office or a workroom, could you as easily have a dining room that doubles up? Are you trying to fill your needs for both now and in the longer term? Is this home going to last you forever or are you creating something for now, knowing that as your needs change youll be able to create another dream home? (Youre going to have to answer an awful lot of questions to get clear about what you want, but its going to be worth it. You cant get what you want until you get clear about what you want.) When youre quite clear about how many bedrooms write it down. Do you want a separate dining room and kitchen or would you prefer them combined? Write it down. What kind of kitchen do you want? What will it have in it? Washing machine? Tumble dryer? Would you prefer a separate utility room? Write it down. Do you love cooking or are you someone who does the absolute minimum on that front? Will you need lots of equipment or very little? A breakfast bar or the kind of large kitchen table that everyone can sit around? This is your dream youre creating here and you make up the rules as you go along. If you find yourself thinking Ill never be able to afford that, keep reminding yourself this is a game, this is a dream youre creating ... for now! This is what I mean by letting down your walls of belief. Doing this exercise not only helps you get clear about what you like and what you want, it also helps you get in touch with those beliefs that stop you being who you really are and getting what you really want. The more work you do on this the greater are your chances of success because youre also working on your subconscious, giving it encouraging affirmations, wiping the old negative tapes and replacing them with new, positive ones. When you get to the point where youve had enough for now, stop. Youre doing some really hard work here and you need to acknowledge that. Were generally much better at quantifying physical work than mental effort and its important not to overdo things at this stage otherwise youll end up exhausted, especially at the beginning. Put it to one side and come back to it later but try and set aside a brief time each day, or perhaps three times a week, to keep working on your blueprint. As your vision grows start imagining yourself in your dream home, walking around it, looking at each room. How do you feel? Are you comfortable? Does it reflect who you are, who youd like to be? What colours predominate? Lush, rich colours or something more subtle? Are there carpets, wooden floors, rugs and runners? Is it full of things, a cosy, family home or is it elegant and minimalist? What do the doors look like, the walls, the lights? If you change your mind about something as your vision develops thats fine. Just change it on your blueprint. It doesnt matter how messy it gets. You can always do a neater version as you get more clarity. Are there any absolute essentials you couldnt live without? Do you need to be near public transport, within easy reach of the shops, close to people you care for or care about? Would you prefer to be out in the countryside or in the middle of a town? Are you passionate about the sea and dream of living within sight of it? Dont listen to the voice that says in your dreams. Write it down. Is your dream home somewhere hot and sunny, a retirement home abroad, perhaps? Just put yourself in that place, imagine it, smell the scents, see the colours and create your home in the local style. Is there anyone else to take into consideration, other members of the family, family pets? Its probably easier to do this exercise if youre doing it just for you but Im assuming your dream home will accommodate what family you have so I guess you might have to make a few compromises. If a husband needs a garden shed to take refuge in, a garage to store assorted paraphernalia, build it into your blueprint. If the kids need somewhere to store their bikes, if the rabbit needs some grass, put it all down. Is there a dog that needs exercising -- do you need to be near to a common area? Do you want a garden? How big will it be? Whos going to maintain it? Will there be hedges, fences, walls? Are you bothered about being overlooked, about privacy or would you be happy having neighbours you can chat to over the fence? Will there be a vegetable plot or just flowers and shrubs -- what kind? Put it all down. Something that needs to emerge through doing this exercise is a sense of responsibility for what youre creating -- and thats a tricky one. On the one hand Im saying go for whatever your want while on the other Im saying you have to take responsibility for what you create. But theres no point in dreaming up a home like something out of Footballers Wives if youve got small children which means youll have to cover up the swimming pool and spend all your time picking up their toys in a vast garden. It doesnt make sense to want a large garden with a vegetable patch if no one in the family has ever picked up a trowel, or to want an elegant, minimalist home youve seen in a classy magazine when you know youre really untidy and perfectly happy with that. You need to be realistic. This dream home has to be in line with your values and what you want out of life. Keep working on your blueprint until youre confident youve covered every possible detail. Then start putting energy into moving towards that dream. What are you going to need to do to move you closer? What are you going to have to let go of? The most important consequence of doing this exercise is gaining clarity about who you are and what you want. We so often spend our lives vaguely dissatisfied, not sure what we want but quite sure that we dont want what weve got. Ultimately you may end up taking a few tiny steps to bring your dream into reality -- clearing out stuff you no longer need, changing the use of a room from, say, a bedroom into a workroom or office. Or you might move on in huge leaps and acquire exactly what you wished for (even down to that second telephone line!) You may decide youre not quite ready for such major change, that there are other issues to resolve first. Thats also fine. You might want to put your blueprint away for a while and come back to it in six months, a year. It just might astonish you to look at it after that time and see that some of the things you wrote down have appeared, as though by magic. You see, once you get really clear about what you want, what you want tends to find you!
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