Your Guide to House Hunting
Both Freddie Mac and Fannie Mae have gotten quite a bit of media attention on their recent bailout, a la Bear Stearns. While the consequences for this hasn’t been felt yet (and I am pretty sure that we as tax payers are going to be integral in footing the bill) the ramifications of them going under would have been drastic. They still have something to offer, read on to find out what…
Having said that, I think its important to still take a look at what these mortgage companies have to offer. I am in the long process of doing research on becoming a home owner: looking at the comps in every feasible neighborhood, seeing what it would cost to heat or cool different amounts of square footages, as well as the very process that you need to go through in order to secure the right loan and deal with a real estate agent. I would like to pass some of this on to you, dear reader.
To begin, we need to look at credit. Starting about a year ago, I was told by a mortgage broker that my credit needed to be shaped up if I was ever to even think about approaching a lender. In order to hand over a large chunk of money, a bank needs to know that not only will you be able to pay them back, but that you will be able to pay the interest that invariably comes along with it. The better the credit score you have, the lower the interest you have to pay due to the fact that you are less of a risk. Vice-versa, if you have bad credit, you are more of a risk and therefore will need to pay a higher interest rate since to offset the whole risk reward equation. Credit really bad? You might not get a loan at all.
TIP: Be prepared to pay about 30% of your net monthly income on a mortgage payment. Some might say a different percentage, but either way, err on the side of caution. Leave room for living.
So I began by paying down credit debt (with first attempting to reach 49% paid off), not being late on a single bill, socking money away, and keeping my checking account in the black. Mortgage companies look at everything and I mean everything. They might question why you make X amount and still managed to overdraw your account even for a day. Now that the economic woes of this country are at full tilt, its getting harder and harder to secure money and lenders are scrutinizing your finances more and more. Be ready with bank statements sent from your bank, not just printouts off your online access.
There are more little ins-and-outs with respect to just getting the money in the first place, and hopefully we will be able to cover them soon. Another detail is simply finding the right home in the first place. Find out what the final amount might be and extrapolate to see what your monthly payment might be. ZipRealty.com does a great job of integrating a calculator into the bottom of each house listing to show what payments can look like
TIP: Be cautious of going talking to a real estate agent before you are ready. Some are very “tenacious” and might not understand if you are just shopping. ZipRealty will email you quite a bit, but these are automated and are just fishing for customers. If one gets through, simply tell them you are under contract with another agent and that you are getting comps.
Once you start looking at homes, the best advice I can give is to stay organized. With the power of the interwebz, it is very easy to accumulate more houses you like than you can deal with. Create a spreadsheet, and keep files on all the houses you go through. Even if they are just printouts of home listings, it can come in handy down the road. Don’t be afraid to include houses that you are not fond of, its just as important to keep track and note what you don’t like about a house as much as you what you do like. This is a big decision and you need to be as informed and self educated as possible.
One of Freddie Macs tools is a worksheet that does a great job of allowing a buyer to keep track of comparable features of all the homes he or she might come across. Print this out and use it. We are also going to include it in our list of tools on the right. Their other tools can be found here. For both buyers and sellers, ZipRealty.com’s blog might also be worth a look through.
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