Buying Your Next Home

By Stephen Shea

I would like to initiate this blog by discussing what is likely the primary reason you’re reading an article on real estate.  That is, an interest in buying a home, be it your first home or your next home.  In either case, whether novice or veteran, there are do’s and don’ts that all prospective buyers need to be aware of; things you must do, things you must avoid, while attaining a general understanding of the process before you. 

My goal is to bring some clarity to, and remove some concerns from, the process of buying a new home.  I hope to advise you on what to expect as you wend your way through the process, from what to do before you start, to finding the right home, to negotiating the best price, and to closing on your purchase. 

Even for experienced home buyers, there could be important changes to the process, to the mortgage market, and to tax and legal matters that can make every new home purchase a challenge and require new answers or different approaches.

In this and subsequent articles, I’ll address what preliminary steps you should (or must) take before initiating your search effort, what are some of the mistakes many new home buyers make and why you shouldn’t allow these to hinder your home buying effort, how to go about selecting where you may wish to live, determining how much home you can afford, identifying what are the absolute must haves in the home of your choice, and determining if the house you can afford meets the “must have” requirements in the city or town of your preference.

Perhaps to no one’s surprise, I’ll advise why I believe it is best to utilize the services of a real estate professional in your efforts, clarify the role and fiduciary responsibilities of your real estate professional, and identify the other professional advisers and their roles you’ll engage along the way.

Now, let’s get started.

First off, determine your long term goals and whether home ownership fits into them.  Do you plan/expect to remain in the area for a length of time?  If not, frequent uprooting can leave you vulnerable to having to move in a down market, made even worse if you bought when that market was at a peak. Renting could mean less risk of financial loss if you’re situation is unstable or uncertain. 

If buying a home is what you determine to do, and you expect to finance that purchase, your first action should be to pre-emptively clean up any credit issues or blemishes on your credit record.  Obtain copies of your credit reports and verify that your credit information is accurate and correct any mistakes.  Do this as far in advance of starting your home buying process as possible. The farther any issues are behind you the better.

Try as best as possible to lower outstanding balances on credit cards and discretionary credit lines to under 50% of your available credit line.  Avoid the temptation to buy that new living room or bedroom set before closing on your home.  Your bank’s mortgage pre-approval letter (more on that later) is written on paper, not etched in stone, and can be torn up if your outstanding debt causes your FICO credit score to deteriorate.  Also, avoid unnecessarily checking your FICO score.  Each inquiry causes your FICO score to decline temporarily.  Too many inquiries just before the bank checks your FICO for a mortgage approval determination could prove disastrous.   

After the financial meltdown of 2008-9, caused in large part by excesses in the mortgage lending industry, many steps were taken by regulators and the housing industry to bring sanity back to the marketplace.  The subprime sector of the mortgage industry, believed to be at the heart of the problem, has been virtually eliminated.  And while new legislation, particularly the Dodd-Frank Bill, has strengthened regulatory oversight and made predatory lending (mostly) a thing of the past, you may be surprised to see how many mortgage product alternatives are still available to you. 

But we have not returned to the past, where FICO scores counted for very little.  The one important change to remember is that now FICO credit scores count very heavily in the approval process.  And banks are now saying NO where appropriate.  Get and keep your credit rating in order is now the watchword.

My next blog will focus on choosing where to live.

                                                  

Stephen Shea is a licensed real estate agent, real estate developer and has a background in financial modeling and planning. He can be reached at Stephen@ChiltonAndChadwick.com or 203.822.1555.