Buying a home on the Big Island?
Here are 4 tips…
Quite possibly one of the biggest decisions you will ever make in your lifetime will be buying your first home. It can be a bit overwhelming and you may even feel like you are having to learn a second language: Escrow, interest rates, down payments, HOAs, credit scores, pre-approvals. Let’s start by assuming that you clicked on this article because you have made the decision to purchase a home—and you fall into the category above and are actually going to read the 5 tips you should consider before you purchase your first home.
1. Credit score, credit score, credit score.
The importance of your credit score cannot be overstated. There are plenty of websites that will allow you to get your credit score free. Take advantage of these and keep a close eye on your credit score. Look at it at least a year before you want to purchase a home, so that you have plenty of time if anything does need improving. Most lenders want to see your credit score above 700, so definitely aim for that. And remember, the better your credit score, the more likely you are to get a much lower interest rate. And who doesn’t want to save tens of thousands of dollars?
If you feel like your credit score is good enough to start looking for that perfect house, it’s a good idea to get a lender to pre-approve you before you start shopping—this lets the realtors and sellers know you’re serious, and gives you a good starting point when you are looking at homes. The process is fairly simple and in some cases you can get approved online. Basic requirements are verification of your employment, income, and credit.
Once you’re pre-approved, don’t do anything too drastic in your financial life. Don’t buy a new car or open a bunch or credit cards. Don’t apply for other loans or change your job. Your pre-approval is based on your financial situation at the time of application and any changes can get your loan denied when you try to purchase a home.
2. Know what you can afford.
Your lender bases their decision on how much you can afford based on what you earn and how many other secured debts you have. However, they do not take into account any other living expenses. You may be pre-approved for a $400,000 loan for a home, and you think that it’s great but, you need to ask yourself if you were to actually get a home that expensive, could you still afford the mortgage along with electricity, water, cable and internet, your car note, groceries, etc.
It’s important to look at the whole picture and take the time to really consider your financial situation and ability. Figure out what you can afford to spend, and figure out what you’re comfortable spending. Don’t be shy about this number. You may see real estate agents on TV showing prospective buyers houses way out their price range—actual agents won’t do this if you tell them your top price. They want to make a sale just as much as you want to buy. And in the long run, you’re the one paying so it’s important that you know your comfort zone.
3. Know what you want.
This is an important piece of the process. If you have house fever, then you’ve already been thinking and dreaming of all the things you’d like out of a house. It’s good to make lists of things that you won’t compromise on and things that you would be more flexible about not having. As you visit each home, write down what you like and don’t like about each of them and compare them to your list. You may decide that you don’t want to even tour a home that doesn’t have at least 2 full bathrooms. That’s fine, adding a bathroom is an expense project. But always keep an open mind about things like paint colors, fixtures, furniture arrangements, or ugly carpeting. Those are all easily changeable, and you’re unlikely to find a place that has exactly your style or tastes already installed.
4. Set up a property search.
You can look for a local, broker owned real estate website like Live on the Big Island.com to set up a property search. Many of the large real estate portals will not have all of the active listings in your area, so make sure that the real estate broker you do find is a member of the local MLS. This will ensure that you are getting everything that is available in your market.
Buying a Home is a HUGE DECISION
After contacting a real estate agent and get your pre-approval for your loan you will be ready to start viewing homes. At first, you may not see anything you fall in love with but don’t dismay. Considering how much money you’re getting ready to spend, you want to make sure that you are more than okay with your purchase. Although the process may seem daunting and you just want it to be over, It’s never a good idea to settle and hope that you’ll grow to love the house.
First time-buyers often don’t consider what still has to take place even after you find your dream home, put in an offer, negotiate and finally have your offer accepted. Then, there are inspections and appraisals, now you have to actually be approved for the loan, so there will be paperwork and a ton of documents you will have to read, fill-out and sign. Keep in mind that these steps could take as long as a month to complete.
Buying a home is a big step in your life—make sure you have considered how big of a decision and expense this is going to be, and make sure that you are getting what you want.
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