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THE MUST – do’s before buying a home
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THE MUST – do’s before buying a home

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October 22, 2017
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Buying a house is one of the biggest investments you’ll probably make over the course of your life. For a lot of people, it is the largest purchase they’ll ever make. While owning your own home can be incredibly satisfying, before you dive in, it is good to be prepared so you can buy your home with peace of mind.

Preparation cannot be overestimated. As the housing crisis approached, many homebuyers were unprepared for changes in income and managing risk, often leading to foreclosure. Prior to the housing crisis, U.S. housing finance policy, for example, succeeded in building stability and prosperity for almost 70 years based on a combination of government support and regulation to stimulate the flow of private capital to affordable and lower-risk mortgage products. In the 2000s, there were mortgage products introduced into the market that were not beneficial to the consumer.

the vaultz africaTherefore, it is vital that as you embark on the journey of buying your first home, you have sufficient incoming cash (earnings and other) as well as enough savings put aside. Before entering the world of home ownership, make sure you have been through the necessary steps required.

Here are some few things you need to do when purchasing a house:

STRENGTHEN YOUR CREDIT SCORE

Your credit score impacts your ability to get a loan for your mortgage payments. The higher your credit score, the lower your monthly payments will be. At 660 to 680, you are eligible for mortgage lending from most lenders. Below that score range, you will end up paying large fees or lenders will require a higher down payment.

Lenders may offer loans to borrowers who are prepared to put down larger payments if their credit scores are lower than optimal rates or the market standard (640-660), but still within the 580s. It is better if you can raise your credit score before you apply for your home mortgage. Any score above that range helps lower your interest rate and saves you significant amount over the long run.

You’ll end up with a good deal with scores of 700-720. Scores of 750 and up will pretty much get the very best rates available. Knowing this, go in prepared. Increase your possibilities of getting that mortgage loan approved for the house you want with an affordable interest rate and monthly payment by increasing your credit score. Get started by pulling up your credit report and checking for any errors. Be sure to have a consistent payment history.

In addition, wait for a whole year or longer from the time you last applied for new credit before you apply to get a mortgage loan. Wait again to apply for new credit until you have secured your home and moved in.

DETERMINE HOW MUCH HOUSE YOU TRULY CAN AFFORD

This is very important. Too often homebuyers purchase homes beyond their financial reach, then find themselves stretched and unable to make their monthly payments. Avoid this catastrophe and any associated stress by purchasing a house that falls within your affordable budget. Remember this simple rule: the monthly cost of paying for your home and all related expenses should be 28-30% of your budget or less. Anything over this amount is too expensive on a monthly basis. Knowing this, you can effectively plan out your budget. Use financial calculators to help you figure out how much you will pay for the house you want. Put aside enough money and build a nice nest egg before you buy.

WORK WITH A SKILLED REALTOR THAT KNOWS THE AREA

Every neighbourhood has its unique qualities that you want to be aware of before you buy. An agent that is well-informed about the area will also know what homes there are and their worth, which will help you avoid overpaying for a property. You want a real estate agent who knows their stuff locally!

Make sure you interview several different buyers’ real estate agents. Choose someone that is full time working in the business every day and has a recent history of successful sales. The better the real estate agent knows the area, the better equipped they will be in understanding the differences in market value from one property to the next.

USE A REPUTABLE HOME INSPECTOR.

Find a home inspector that is registered or certified, or someone your real estate agent knows and trusts. You need someone who knows what he or she is doing and is not motivated to miss issues to encourage a sale. It is also advisable to find your inspector yourself if you do not know your real estate agent well. The last thing you need is a real estate agent recommending you use their favourite inspector because he [real agent] is not that thorough. While most real estate agents are honest people, there are always a few bad apples in any industry so you need to be on the lookout.

SAVE FOR YOUR DOWN PAYMENT AND CLOSING COSTS

The next step is to put enough cash aside for your down payment. This amount can range between 3% and 20% of the home’s price.

See Also
The housing market has long been a barometer of economic stability, reflecting the health of financial systems and consumer confidence. Today, concerns are rising as trends in the market begin to eerily echo the dynamics of the 2008 housing bubble. A surge in vacant homes, coupled with a flood of new inventory, is prompting experts to question whether the housing market is poised for another catastrophic downturn. In recent months, the U.S. housing market has seen a significant influx of new listings, leading to an oversupply in certain regions. While increased inventory is typically seen as a sign of a healthy market, the rapid accumulation of unsold homes is raising alarm bells. Data shows that the number of homes sitting vacant and awaiting buyers has climbed to levels reminiscent of the pre-crisis period in 2008. This growing inventory has put downward pressure on home prices in several areas, as sellers compete to attract buyers in an increasingly saturated market. For prospective homeowners, this might seem like an opportunity to enter the market at a more affordable price. However, the underlying dynamics suggest potential instability that could have far-reaching economic consequences. Drawing Parallels to 2008 The 2008 financial crisis, often referred to as the Great Recession, was precipitated by a collapse in the housing market. Lax lending standards, speculative investments, and an oversupply of homes created a bubble that ultimately burst, leading to widespread foreclosures, plummeting property values, and a global economic downturn. Today, the housing market is facing several challenges that resemble the conditions leading up to the 2008 financial crisis. One of the most striking similarities is the oversupply of homes. In the wake of the pandemic, builders were buoyed by strong demand and low-interest rates, which led to a significant increase in construction. However, as economic conditions have shifted, many of these newly constructed homes are sitting unsold, contributing to an excess of inventory in the market. This influx of unsold homes is creating a supply-demand imbalance that could trigger a correction in the housing market. Another alarming development is the rise in vacancy rates. When homes sit vacant for long periods, it signals a mismatch between what the market is offering and what buyers are willing or able to purchase. This issue was a major contributing factor to the 2008 housing bubble, as an oversupply of homes, many of them vacant, drove down property values and triggered widespread foreclosures. Today, we are seeing a similar pattern, with vacant properties accumulating as the demand for homes remains weak. This growing number of unsold homes serves as a warning sign that the market could be headed for another downturn. Economic uncertainty also looms large, further fueling concerns about the housing market’s stability. Rising inflation, higher interest rates, and the looming threat of a recession are all factors that are reducing buyer confidence. These macroeconomic pressures make it more difficult for potential homeowners to secure financing or justify purchasing a home at current price levels. As a result, many buyers are staying on the sidelines, waiting for the economic landscape to improve. This hesitation, coupled with the increased cost of borrowing, is contributing to the market’s stagnation and could lead to a broader downturn. Finally, while lending standards have improved since the subprime mortgage crisis of 2008, the current economic climate is still putting pressure on banks to tighten their credit standards. The higher mortgage rates, along with stricter lending requirements, are pricing many potential buyers out of the market, particularly first-time homebuyers who are more sensitive to changes in interest rates. With fewer people able to qualify for loans, the demand for homes continues to decline, further exacerbating the supply-demand imbalance. This tightening of credit availability adds yet another layer of complexity to the housing market’s struggles and raises the question of whether the current market is headed for a repeat of the 2008 crisis. Interest Rates Contributing to Reduced-Demand One of the most significant factors impacting the current housing market is the rise in interest rates. The Federal Reserve’s aggressive rate hikes, aimed at curbing inflation, have made borrowing more expensive. Mortgage rates, which hovered at historic lows during the pandemic, have more than doubled in some cases. This shift has reduced affordability for buyers, leading to a slowdown in demand. Higher interest rates also have a cascading effect on the broader economy. When borrowing costs rise, consumer spending typically decreases, which can lead to slower economic growth. In the housing market, this translates to fewer buyers, longer sales cycles, and declining home values. The Bearing on Homeowners For existing homeowners, the current market dynamics present both challenges and opportunities. On one hand, those who purchased homes at lower interest rates may find themselves locked into their properties, reluctant to sell and face higher borrowing costs for a new home. On the other hand, homeowners looking to upgrade or relocate may struggle to sell their homes quickly or at desired price points in an oversaturated market. Additionally, the growing number of vacant properties could lead to a decline in neighborhood desirability and overall property values. This was a common occurrence during the 2008 crisis, as foreclosed homes and abandoned properties became prevalent in many communities. Lessons from 2008 The housing market crash of 2008 left a lasting imprint on policymakers, financial institutions, and consumers. In the years since, significant reforms have been implemented to prevent a repeat of the crisis. Stricter lending standards, enhanced oversight of financial institutions, and the creation of the Consumer Financial Protection Bureau (CFPB) were all aimed at stabilizing the market. Despite these measures, the current situation underscores the complexity of the housing market and its susceptibility to economic fluctuations. While the conditions leading up to 2008 were exacerbated by risky lending practices and speculative behavior, today’s challenges stem more from macroeconomic factors and pandemic-induced disruptions. Potential Outcomes As the housing market continues to grapple with oversupply and economic uncertainty, several potential outcomes could emerge, each with its own set of implications. One possibility is a market correction, where home prices gradually decline to align supply with demand. This scenario could allow the market to recalibrate, bringing some relief to buyers while avoiding a more severe crisis. While this would undoubtedly cause financial strain for many homeowners, particularly those who purchased at peak prices, a gradual adjustment could help stabilize the market without triggering widespread foreclosures or a financial meltdown. Another outcome could be localized crashes in specific regions where vacancy rates are highest, and the oversupply of homes is most pronounced. In these areas, the imbalance between supply and demand could lead to sharper price declines, potentially resulting in higher foreclosure rates. The economic fallout from such localized crashes could ripple through local economies, especially in markets that have been overbuilt. Homeowners in these areas may experience significant losses in property value, which could further exacerbate the broader economic challenges faced by consumers and businesses in those regions. On a larger scale, a downturn in the housing market could have a broader economic impact, triggering a decline in consumer confidence and spending. The housing market is a key driver of economic activity, and a significant slowdown could contribute to a recession. As people feel less financially secure, they are likely to pull back on discretionary spending, which could lead to a reduction in demand for goods and services. This, in turn, could slow economic growth and further destabilize the housing market, creating a vicious cycle that is difficult to break. The potential for a housing market downturn to trigger a broader economic crisis underscores the importance of addressing the underlying issues in the housing sector before they escalate. Mitigating Risks To mitigate the risks associated with the current housing market challenges, all stakeholders, including policymakers, builders, financial institutions, and consumers, must play a proactive role in stabilizing the market. Policymakers should remain vigilant and closely monitor market trends, particularly in regions facing the highest risk of oversupply and vacancy. They may need to consider targeted interventions, such as tax incentives for first-time buyers or temporary housing assistance programs, to prevent widespread market disruptions. At the same time, builders may need to reassess their construction plans and scale back on new projects in order to focus on selling the existing inventory. By aligning new construction with demand, the market could better absorb the available supply, easing the pressure on both prices and vacancy rates. Financial institutions also have a critical role in this process by ensuring responsible lending practices and offering support for homeowners who may be struggling with mortgage payments due to economic challenges. Offering solutions such as refinancing options or forbearance programs can help prevent foreclosures, which could otherwise exacerbate the market’s instability. Meanwhile, consumers must approach the housing market with caution, prioritizing long-term affordability and stability over short-term gains or speculative investments. Buyers should consider the sustainability of their financial situation, ensuring they are not overextending themselves in a volatile market. By making informed, responsible decisions, consumers can help temper demand and reduce the risk of fueling another housing bubble. For policymakers, industry leaders, and consumers, the current moment presents an opportunity to learn from the past and take steps to mitigate potential fallout. By addressing the challenges head-on, the housing market can steer these turbulent times and emerge more resilient in the years to come.
A CRISIS IN THE MAKING? …Housing Market Mirrors 2008 Bubble Dynamics

Remember to factor in closing costs and loan fees. Closing costs can add up. Be sure to plan for these additional fees. For example, if you sign up for a $200,000 mortgage, your closing costs are typically $2,300-$4,000.

Put aside as much money as you can for your down payment and closing costs.

BUILD A HEALTHY SAVINGS ACCOUNT

You have to have a savings account in place before you buy your home, especially when you are borrowing money from a lender. One of the most important aspects lenders want to see before they approve a mortgage loan is you have genuine savings and are not dependent upon your paycheck every month. Aim to have at least three to five months of savings put aside. This money will also be helpful if you have unexpected expenses, like a new water heater or roof, which can quickly add up.

Just paying your mortgage is not the only cost you incur when you buy a house. You also have additional costs such as maintenance and repairs. This typically costs 2.5% to 3% of the cost of your home every year. Some older homes may require more repairs. If you are doing a renovation or addition to your home, you will incur more expenses. Therefore, at the very minimum, plan on putting aside cash for these maintenance and repair costs.

GET PRE-APPROVED FOR A MORTGAGE

Get pre-approved so when you are ready to buy, you have already done a lot of the heavy lifting and you will be prepared to buy a home you like. The pre-approval process is more extensive than it was a few years ago. Your documentation around income and assets is essential. This step is advisable to help you in determining to a close approximation of how much house you can afford to buy. It also reduces your stress level since you are more prepared before you meet with the mortgage lender.

BUY A HOUSE YOU LIKE

Finally, buy a house that you like and can live in for the next few years at least. Short-term ownership can be expensive and difficult because selling homes can take time. Step back and make sure you and your family really like the house before you buy.

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