Find A Home
You’ve looked at dozens of homes. Your REALTOR® is about to tear her hair out with frustration. You are paralyzed, letting one great home after another pass you by. Why can’t you make a decision?
Buying a home can be an overwhelming process. There are so many decisions to make and any of them can mean serious financial consequences. A home, after all, is hardly a liquid asset. Nor is it a growth investment, according to Wall Street definitions. It’s your greatest financial debt, even while it puts a roof over your head. As it appreciates, it also needs repairs and maintenance. With all that weighing on you, no wonder you’ve got commitmentphobia.
Yet, you really want to buy a home. You know that few purchases will provide you the quality of life that a home of your own does. There are plenty of advantages, as well – tax breaks, rising real estate values, a stable environment for the family, to name only a few. So you stifle your worries and keep looking for homes. You just can’t find the one that’s just right for you.
It might be time to back this train up and examine what is causing the conflict between wanting to buy and being unable to make a decision. There is a cause, and it’s name is money. The question is, which aspect of money is stopping you from moving forward?
Fear of spending too much
Lenders will loan you money at the top of your ability to borrow. Realtors will suggest that you will be happier in a “bigger, better” home, eliminating the need to “trade up” in a few years. Stretching to buy the most home you can possibly afford is a good strategy, but only under certain conditions – that you have confidence that your salary will rise, that your income is stable, and that you can handle large surprise expenses.
If you’ve been pre-qualified, you are already looking at bigger, better, more beautiful homes at the top of your range. But something isn’t quite right. Even though you may feel that your income is stable, a feeling is telling you that if you buy in this range, you won’t have enough in reserves should something happen. Those are your instincts talking, and you should listen, because your desires have been doing the talking up to now. Your instincts are telling your desires to scale back a little.
That means backtracking. Talk to your Realtor and ask her to show you less expensive homes. You can’t go wrong buying slightly under your ability. In fact, many financial advisors tell their clients to budget about 25% of their income for housing in order to position them to build reserves for savings, investments, home improvements, emergencies and dozens of other reasons. That’s almost six percent less than lenders will allow you to borrow. Just think what else you can do with six percent of your income. You’ll still have your house, you’ll just have more to do other things with.
A conflict in goals
Many couples purchase homes with the idea that they will have a child, so stretching buying power to have the extra space makes sense. But if you are trying to accomplish two big financial goals at the same time – buying a home and adding to your family, then something has to give.
You can’t have it all – peace of mind, a large mortgage, and burgeoning expenses all at the same time. Something has to give and the way to do that is simply to prioritize your goals. In what order of importance do you want things to happen? What is most important to you? Whether you are planning a family, returning to graduate school, paying off a student loan, or buying a new car, you surely realize that your financial pie can only be sliced so many ways. Your mortgage is the largest, and the larger it is the smaller the other pieces.
Problems in the marriage
This is one of the toughest issues to address, and one your Realtor can’t help you with. But just as you are listening to your instincts about the amount of money you should spend on your new home, you should be paying even more attention to your feelings about your marriage. And only you can answer the question – will we still be together in five years? You should at least be able to predict being together long enough to pay off the interest on your loan! Or you’ll be selling your home without the benefit of building any equity and equity only comes with appreciation and mortgage reduction.
Buying a home will not fix a poor relationship. It will only make things worse. So you have a decision to make and it isn’t which house to buy. It is whether or not you want this relationship to survive. If you decide you want the marriage, then you must pour your efforts into fixing its problems, including your share of the blame. Be willing to change some things, compromise on others, or accept many things as they are. If you can’t do all of those, then to dissolve the partnership is your only other choice. After you have solved the problems in your relationship, you will find your home more easily.
Fear of the future
Fear takes the fun out of a lot of things, but there is reasonable fear and unreasonable fear. Unreasonable fears have no basis in reality, so there is little you can do beyond getting professional help for your anxiety. Reasonable fears you can handle on your own with a little common sense.
Fear can be tamed by looking at the worst case scenarios compared to the best case scenarios. So examine the questions that are really bothering you.
What if we can’t make our payments? This question can be balanced by a best case. What if we manage our money so well that we can make double payments? So the fear here is manageable – it comes down to how confident you are about managing your money. If you aren’t sure of yourself, get help. Ask someone whose money management style you admire for advice on how to manage your money better. Then stick with it.
What if the value of our home goes down in value? Would you feel as fearful if you asked yourself whether your property will go up in value? Property can go up or down, but all property requires maintenance or it surely will deteriorate in value. This can be easily prevented by having enough budgeted or in your reserves to perform scheduled and unscheduled maintenance. Look at the properties surrounding the home you are considering. Are they maintained with pride? Are they being updated? Then your chances are good that the neighborhood and your home will retain its value. Rest assured that there will always be a buyer for an attractive, well-maintained property.
Because it is not a liquid asset, real estate is not as volatile as you think. It goes down slowly and rises comparatively slowly. And home values even when depressed may get a resuscitation after a few years. Your best hedge against the future is to keep your property in desirable condition.
You can’t predict the future. The only thing you can do is prepare yourself to handle what may happen.
So money isn’t the root of all evil, but it is the root of indecision – at least when you are paralyzed about buying a home. Thinking through the money issues can help you get moving one direction or the other. For some of you, just reading this article will put your jitters to rest. For others, you may realize that a home isn’t in the cards for you right now, and that’s OK. Wait a few days or weeks if you need to. Use the time to regroup. It is far better for you to work through a few obstacles than to jump into the largest investment of your life without confidence. If you can work through your fears, get your finances in tip top shape and proceed, you’ll find buying a home doesn’t have to be a paralyzing decision. In fact, it can be one of the most exhilarating things you’ll ever do.
If you are worried about cash flow, then making disproportionately large house payments will tarnish the joy of home ownership, unless you can find ways to cut down the other pie pieces. Work to improve your cash flow. Accelerate your credit card pay -offs Don’t incur new debt. Rebudget your expenses and eliminate unnecessary expenditures. Make compromises – vow to cut down if you can’t cut something out. Be willing to move timelines for meeting your goals. Don’t be influenced by others to live beyond your means. Set your sights on an affordable home, and you may find your dream home will appear right before your very eyes.
Can’t decide which mortgage product suits you best? Try shopping for mortgage rates online and you’ll have a plethora of choices. Although most of us are already aware of the dangers that adjustable rate mortgages can bring (thanks to the real estate market collapse), not all potential homebuyers have a sound idea of how to choose the best mortgage that they can easily manage.
Because many are now enticed of how low interest rates can reduce monthly payments, homeowners are scrambling to get the best rate in loans for which they qualify. Shopping for mortgage has never been easier but these tips will guide you on how to properly compare mortgage rates.
Step 1: Check the lender’s criteria for qualification
Lenders differ from each other in terms of classifying which borrower is well qualified. A combination of factors such as credit score, principal payment, current debt and other criteria are considered by banks. If you think you don’t qualify in some banks, do not include them in your list.
Step 2: Review national average rates
Every week, Freddie Mac publishes its Primary Mortgage Market Survey (PMMS) that “surveys lenders each week on the rates and points for their most popular 30-year fixed-rate, 15-year fixed-rate, 5/1 hybrid amortizing adjustable-rate, and 1-year amortizing adjustable-rate mortgage products” along with comparisons of rates on different U.S. regions. This is a good starting point on your search since you’ll get a good idea of how rates are faring in your area.
Step 3: List loan-related fees among lenders
All lenders charge borrowers on the processing, approval and making of the mortgage loan. By listing these charges, you can find better gauge which lender is competitive enough to keep your payments lighter. After determining their uniform charges, remember to separately list the fees which are independent to each lender to keep a more accurate tally later on. These “other” fees include processing and wire transfer fee, origination fee, mortgage insurance premium, appraisal fee, credit report cost, tax service fee, underwriting fee, application, commitment, etc.
Step 4: List the lock-in period of mortgages
Because mortgage rates depend on a number of factors, they vary daily – keeping borrowers and lenders tuned to its movements. In order to minimize the risk that you will be paying a higher mortgage than the one that you had originally applied for, locking in a mortgage rate is highly encouraged. The most common lock-in periods are 15, 30, 45 and 60 days. List the lock-in fees and penalties that lenders are charging since you’ll be spending for this eventually.
Step 5: Group all lenders sharing the same interest rate and lock-in periods
Create a table that will help you compare lenders with similar offers. Refer to your PMMS if they are not offering rates that are way too high than the national average. By grouping lenders together, you can eliminate any biases that may come during your research.
Step 6: Add the independent charges of each lender
By calculating the annual percentage rate (APR) per lender, you will be able to arrive at a more accurate decision of which lender will offer a more competitive rate based on their loan options. Remember, a high mortgage loan processing fee doesn’t necessarily mean the mortgage carries a high interest rate. It all depends on the offer of the lender.
Can’t decide which mortgage product suits you best? Try shopping for mortgage rates online and you’ll have a plethora of choices. Although most of us are already aware of the dangers that adjustable rate mortgages can bring (thanks to the real estate market collapse), not all potential homebuyers have a sound idea of how to choose the best mortgage that they can easily manage.