Buy A Foreclosure: 5 Simple Tips To Get A Good Deal On A Home
Buying a home can be overwhelming the first time. First time buyers begin to feel that their finances are rapidly spinning out of control. Most people have very little experience and knowledge about buying real estate at all, much less getting a good deal on a foreclosed home. Buying a home is really a simple process when you break it down to the basics. The following steps will help make the process smooth.
1. It is vital to get pre-approved for a mortgage as early as possible. Mortgage programs and their complicated paperwork can be confusing. An early head start gives you more time to fully understand what your are doing. An additional benefit is that potential sellers know that a pre-approved buyer is a serious buyer. This will give you a negotiating edge which is extremely beneficial if more than one buyer is interested in the home you want. Mortgage pre-approval can also save a great deal of time and effort. If you cannot be approved for a mortgage presently, you shouldn’t waste your time looking at homes until you have overcome your mortgage obstacles.
2. On the mortgage front, the next thing you should watch out for is to avoid prepayment penalties at all costs. A prepayment penalty means that if you buy the home then later want or need to sell it or refinance it before the prepayment penalty expires, you’ll have to thousands extra. You can find a variety of great loans that don’t include these types of penalties. If your loan officer proposes a loan that does include prepayment penalties, you should usually turn it down and look for another loan. There is one caveat to this rule. If you know beyond any doubt that you will not qualify for a better loan prior to the expiration of the prepayment penalty and thus won’t be able to refinance, it is reasonable to accept what is known as a “soft” prepayment penalty in exchange for a lower interest rate. This means that you would have no penalty if you needed to sell the property
3. As mortgage rates fluctuate over the next years, you should also stay aware of good adjustable rate mortgages. I know that you have certainly read many horror stories about ARMs, but some include strict limits on adjustments and include easy refinancing terms. If you get a really good adjustable rate mortgage, you could save many thousands over a couple of years. For example, FHA adjustable rate mortgages have strict adjustment limits, absolutely no negative amortization (your loan balance only goes down and never up), and a super simple streamlined refinance process that doesn’t require requalifying if you have made your payments on time.
4. Before you purchase a home, you should always be aware of how much you can afford. You should always go over your budget and figure out how much money you can spend on a mortgage payment. If you manage your money intelligently and know your finances, this should take very little time at all. On the other hand, if you are not on top of your finances, this may take longer but you will be highly rewarded for the effort. Do not base your decision on whether or not you can afford a certain home based on whether the loan officer and real estate agent tell you that you qualify. They are able to qualify you for more than you can comfortably afford and both get paid more when you buy a more expensive home. They will not, however, help you with your payments later on.
5. Once you have your finances in order, the first thing that you should do is to familiarize yourself with home prices in the area in which you want to live. Do not make a great effort to match yourself up with a home at this time. Check prices in the area online so that you know what people are asking for homes, but then be sure to check for foreclosed homes to take advantage of today’s difficult housing market. It is a buyer’s real estate market. For your first home, you are better off choosing a home for investment value than trying to get the perfect dream house. You want to buy a home for at least 10% to 20% less than similar homes which have sold. This way you are primed to take advantage of buying in a down market with little risk and making out like a bandit a couple of years later when you are ready to move up. Don’t expect to pay full market value for a home even when prices are depressed and then benefit from inflation to build your equity. The other homes you will want to buy will be going up too. You make your money when you buy at the right price.
The items listed above are just a few basic tips and there is much more you will need to learn to get the best deal on your first home. It is crucial to educate yourself before you get into the market. Most first time homebuyers skip this step and severely handicap themselves right out of the gate. Many previous buyers are paying the price for that in today’s real estate market. Don’t be scared out of the market by their mistakes. Educate yourself and you can still come out ahead.
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