Tired of that leaky shower in your apartment that goes unfixed? Sick of paying one third of your salary to your landlord every month? Been thinking about buying, but always felt the market was too "hot"?
Many renters have been sitting on the sidelines for years. But with the market at or near the bottom (in our opinion), there's no better time to put together a buying action plan so you are ready to take advantage of an opportunity when one presents itself.
Here are seven tips to put you on track so you can move from renter to owner:
- Review your objectives -- Ask yourself, why am I buying? "To make money" was the default explanation for most of the past decade. But with no guarantee of instant returns, think of why you want to buy a home. "Not throwing money away on rent" and "owning the roof over my head" and "living in a place that I love" are some of the best reasons. For many people , it's easier and more desirable to rent -- make sure you're not one of these people
- Review your finances -- Where are your downpayment and closing costs going to come from? There are some low-downpayment loan programs (FHA loans require as little as 3.5% downpayment), but you will need some reserves to buy a property. If you own stocks, consider your plan for liquidating them into CDs or money market funds so you can "move" in a timely fashion if you find a property that interests you. If you are going to borrow or be gifted funds, make sure this cash is at your disposal when you need it.
- Review your credit report -- Your credit score will determine your ability to qualify for a loan and the interest rate you'll get on that loan. Go to AnnualCreditReport.com to get a free copy of your credit reports from the three credit ratings agencies. Review all information and make sure it is accurate. Dispute anything that is incorrect. A cardinal rule is to keep your credit usage on revolving accounts to less than 30% of your credit limits. Credit scores fluctuate from day to day, and you'll be surprised at how paying down debts or deleting a settled dispute can boost your credit scores quickly.
- Get pre-approved -- Contact a direct lender or a mortgage broker who can review your finances and write you a pre-approval letter. Direct lenders include the national chains -- Citibank, Wells Fargo, Chase or community banks. You may want to start with the bank where you do your checking. Mortgage brokers, who can shop among many loan products, may be able to provide you the best match and best rates. Find out the fees associated with loans (1 "point" or "discount point" = a fee of 1% of the loan amount). Make sure the loan officer has the experience necessary to close a deal -- underwriting is very complicated these days.
- Enlist an agent -- We perhaps have a biased view of this, being in the business of brokering. But you should value knowledge, experience and service when looking for an agent. You are entrusting this person to help you purchase of the largest asset you will likely own, make sure your attitudes and interests are aligned.
- Research the market -- Are you looking for a condo? House? The hills? The beach? The Valley? Define what you are looking for and familiarize yourself with the market. Check out open houses and drive through neighborhoods, look at MLS listings, shop around. There is no substitute for being "up to speed" on the market you plan to buy in. You'll know a good deal when you see one.
- Go for it -- If you love it, write an offer. It may be the first place you've seen -- or the hundreth. There's a tendency to feel paralyzed by the "infinite" choices that the market presents. The reality is -- the good properties go fast. And if it seems like a really good deal, it probably is, so you may have to pay full price.