Down Payment Assistance Programs

What Documents do you Need for Mortgage Pre-Approval?

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Obtaining a mortgage pre-approval is one of the most important things you can do before shopping for a home. Without it, how do you know how much house you can afford? Do you like shopping outside of your budget? Probably not, which is why you need to take this step.

We recommend getting quotes and possibly an approval from at least three lenders. This way you have a better idea of what you can afford and at what terms. Below we will discuss the documents you’ll need to provide the lender in order to get the answer you need.

Personal Identifying Information

First, you’ll need to provide your personal identifying information. This means your name, address, birthdate, and social security number. If you have lived at your current address for less than two years, you’ll also need your previous address that covers a span of two years.

The lender will ask you to sign a mortgage application as well as a document that allows them to pull your credit. They need to know your credit score and/or credit history in order to pair you up with the right loan. Without this information, your approval would really just be a guesstimate.

Income Documents

Next, you’ll need income documents. What you need to provide may vary depending on your type of employment. For example, the self-employed borrower will need many more documents than the employee that receives a salary.

If you are a salaried employee, you’ll need:

  • Paystubs – You’ll need to cover the last month of your employment. If you get paid monthly, you need one paystub (some lenders may require another). If you are paid bi-weekly, you’ll need two paystubs and weekly, you’ll need four.
  • W-2s – You’ll need to dig up the last two years of W-2s from all of your jobs during that time. If it’s the beginning of the year and you have not filed the prior year’s taxes yet, you can provide the most recent W-2s you have.

If you are self-employed, you’ll need:

  • 1099 forms – If you are a contractor or received 1099s for any work you did, you’ll need to provide any you received over the last 2 years
  • Taxes – You’ll need to provide the last 2 years of tax returns including all schedules. If you filed business taxes, you’ll need to provide them with all of their schedules as well.
  • Year-to-date Profit and Loss Statement – The lender needs to see how you are faring so far this year. They will compare the P&L to the income reported on your taxes to see if you are on track to earn the same amount of money this year
  • Leases – If your income is real estate focused, you’ll also need to provide the signed and executed leases for any properties you own/rent.

Asset Documents

If you’ll be putting money down on the home or paying closing costs, you’ll need to prove you have the assets available. The lender will need:

  • Bank statements – Lenders usually need 2 months’ worth of bank statements. This lets them see your pattern of deposits as well as look for any unseasoned funds. Any new large deposits that don’t coincide with your income could require further evaluation to make sure they are not a loan.
  • Investment statements – If you’ll use any of your investment money for the down payment or closing costs, you’ll need two months of these statements as well.

If you’ll receive a gift for a portion of the down payment or closing costs, you’ll also need a Gift Letter from the donor. This letter should document the amount of the gift, the reason, and the fact that it is a gift and not a loan.

Purchase Contract

If you happen to have a purchase contract already, you can supply this to your lender. However, it’s best if you do this process before you shop for a home. This way you have a better chance of winning a bidding war and/or just winning the seller’s trust. If the seller can’t confirm that you qualify for financing, they may not accept your bid on the home. If you are lucky enough to find a willing seller to accept your bid without the pre-approval, you’ll need to supply the contract to the lender.

The lender will go over each of these documents and determine how much they may lend you. Notice, we said may lend. This doesn’t mean it’s any type of guarantee. This letter is usually good for a few months. If you don’t find a home within that time, you’ll have to reapply.

Even if you do find a home within that time, you’ll have to meet the conditions the lender states in the pre-approval letter. You may need to supply updated financial documents if too much time passes and you’ll definitely have to find a property that meets the lender’s requirements.

Overall, though getting pre-approved gives you the advantage when it comes to shopping for a home. You’ll know ahead of time what conditions you’ll need to satisfy and how much money you can afford to borrow. It’s a win-win for everyone even if it takes you a little extra time.

 

Understanding the Mortgage Note

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The mortgage note goes by a few names – promissory note and deed of trust note. You sign this document at the closing, when you finance a home. The note is one of the most important documents, next to the deed of trust that you sign.

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Keep reading to learn why this document is so important.

What is a Mortgage Note?

The mortgage note is a contract between you and the lender. You give the lender your home as collateral for the money they lend you to buy the home. The note gives the lender the right to take your home (repossess) it if you don’t make your payments. The contract spells out the details of the agreement- read them carefully.

Your local county recorder will record the note, making it public record. The record shows the amount of the note and the lender that holds the lien on the property.

What’s Included in the Note?

Aside from the promise between you and the bank, the promissory note includes the following:

  • The amount you borrowed
  • The interest rate agreed upon
  • The loan’s term
  • The monthly due date
  • The amount of late fees and circumstances in which the lender charges them

Who Holds the Mortgage Note?

Originally, the lender that provides the mortgage note holds it. But this may not be the case forever. Lenders sell mortgages on the open market every day. Your mortgage may start with one lender and move through a few others before the end of your term.

Lenders don’t need your permission to sell the note, either. They must provide you with notice before they sell it so that you know where to send your payment. They must also provide you with an extended grace period to offset any issues with making payments to the new lender.

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No matter how many times your note changes hands, your terms don’t change. Everything on the note, including the loan amount, rate, term, and due dates remain the same. The only change you’ll see is who and where you make your payments. Rather than making your checks out to Bank A, for example, you’ll make them out to Bank B.

Do You Need a Copy of Your Note?

No one is going to come to ask for a copy of your mortgage note, but you should always have it. You receive a copy at the closing. Keep it in a safe place and if possible, create a digital version in the event that you have a fire or your documents get stolen.

If you don’t have a backup copy and you lose your original, you can get another copy of your mortgage note in one of the following ways:

  • Search the county records and request a copy
  • Contact your loan servicer and ask for a copy

What is the Deed of Trust?

People often confuse the mortgage note with the Deed of Trust, but they are two different things. The note is like the IOU. It’s the document that states that you owe the bank money and its terms.

A Deed of Trust or mortgage is the document that creates the lien on the property. In other words, if you don’t make your payments as promised in the note, the lender can take your home. They have first lien rights on the home.

The bottom line is that once you have a mortgage note, you must make your payments. If you fall more than three payments behind, the bank has the right to start foreclosure proceedings. In other words, the bank can take your home. The process takes as long as 12 months in some cases and you may be able to pay the past due amount and stop the foreclosure, but it will cost you a pretty penny.

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The Best Ways to Find Open Houses

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If you prefer the open house format to view a house at your own leisure, you need to know how to find them. Every weekend, sellers open up their homes in the hopes of finding a willing buyer. Learn how to find open houses easily and enhance your home search.

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Use the Internet

The internet offers a wealth of knowledge for homebuyers. Websites, like Realtor.com, Zillow, Trulia, and Redfin offer information on current and upcoming open houses. Just search your area to find the open houses near you. You can head straight to any of the above-mentioned websites or use Google. Just search for open houses in ‘your city’ and you’ll see a spattering of listings.

Include realtor’s websites in your search online. Many realtors have a filter or an app set up making it easy to search for open houses. Before you head out to any of the open houses listed, though, check the listings on that day. This way you’ll know the listing is current and nothing changed.

In addition to Google and realtor websites, use social media to your advantage. Use the following tips to get detailed results:

  • Hashtags – Search using the hashtag #openhouse and you’ll receive the most recent listings in your area
  • Follow realtor social media pages – Find the top realtors in your area and follow their pages for the most current open house listings
  • Follow your city’s ‘for sale pages’ – Each city has a page dedicated to items for sale, including homes with open houses

Look Around the Area

Technology is great, but you can still find open houses the old-fashioned way. Drive around the desired area you want to live and look for open house signs. Realtors and sellers generally put large signs and flags on homes to catch the attention of the passerby.

Work With a Realtor

If doing the legwork yourself doesn’t appeal to you, sign up with a realtor. A reputable realtor has access to the latest open house listings and can let you know about them right away. Realtors can take you to any open house, not just the houses they list themselves. Because they have access to the MLS listings, they’ll likely know about the listings long before you do.

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How to Use Open Houses

It’s one thing to find open houses, but do you know how to use them effectively? First, use the time wisely. This is your time to view the house without pressure. While you can ask questions of the realtor and/or seller, it’s a time to walk through the home without anyone walking with you. Other potential buyers may be in the home at the same time doing the same thing.

Realtors and sellers host open houses to get the word out about the home for sale. They gather contact information of potentially interested parties, but for the most part, it’s about networking. Open houses help garner more interest in a home, which may bring more buyers in following the open house, increasing the chances of the home selling.

As you go through the open house, look for:

  • The home’s layout
  • The home’s cosmetic appearance
  • The home’s condition beyond the cosmetic appearance
  • Any problem areas
  • Any areas of concerns

Once you have your list, feel free to ask the realtor/seller any questions. Don’t offer your opinion on the home or show any interest, though. The seller’s agent represents the seller. If you are considering the home, bring your own realtor back with you to get his/her input and help creating the right offer.

Open houses are a great way to get a feel for the neighborhood and even view many houses on one day. You can learn a lot about a home during an open house and even learn what others think of it as you browse together. Find open houses in your area and use them to your advantage when shopping for a home.

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Should You Pay off Debt or Save for a Down Payment?

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Qualifying for a mortgage requires many things. You need money for a down payment, but you also need a low debt-to-income ratio. If you’re in over your head in debt, you may not get approved. But, if you don’t have a down payment, your loan options are limited.

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So which should you do – pay off debt or save for a down payment? It depends.

What’s your Debt Ratio?

Your debt ratio is one of the most important aspects of the mortgage application process. Too many debts make you ineligible for a loan. How much is too much? It depends on your income and the loan program.

Lenders look at your total debt ratio. This compares your total monthly debts (new mortgage included) to your gross monthly income. Think of debts like your credit card payments, student loans, car loans, and installment loans. Lenders total the required monthly payments and divide that by your gross monthly income. For example:

  • Total monthly debts $1,500
  • Gross monthly income $4,000
  • Debt ratio = 37.5%

Lenders then determine which loan program you fall into:

  • Conventional loans – Max housing ratio 28% and max total debt ratio 36%
  • FHA loans – Max housing ratio 31% and max total debt ratio 41%
  • VA loans – Max total debt ratio41% (they don’t have a max housing ratio)
  • USDA loans – Max housing ratio 29% and max total debt ratio 41%

A 37.5% total debt ratio is in line with FHA, VA, and USDA loans, but not conventional loans.

If you have a debt ratio of say 55%, for example, you exceed all maximum debt ratios allowed. In that case, paying off your debt makes more sense.

Find the perfect balance between paying debt down/off and saving for the down payment. Chances are that you’ll need some money down unless you qualify for a USDA or VA loan.

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How Much can You Save?

20% down payments aren’t required anymore. Sure, it’s great if you have it, but if you don’t, there are other options including:

  • Conventional loan minimum down payment 5%
  • FHA loan minimum down payment 3.5%
  • VA and USDA loans don’t require a down payment

You can get a loan with as little as 3.5% down. On a $200,000 loan, that means $7,000. FHA loans also have lenient underwriting guidelines. With higher debt ratio allowances and lower credit score requirements, you may find it easier to get approved.

Now, if you don’t have a lot of debt, go ahead and save more for the down payment. Most people today, however, have some type of debt. You’ll need to look at the big picture.

What Can you Afford?

Think about what you can afford. Don’t look at the numbers above – those are guidelines. What can you truly afford? Look at your budget. Plug in the numbers. How do you feel about the large mortgage payment?

If you already have a lot of debt and adding a mortgage payment to it seems overwhelming, pay down your debt. But, if you have minimal debt or you can handle the payments, save for the down payment. You’ll have more equity in your home and earn a greater return on your investment.

No Two People Will Have the Same Answer

Paying down debt or saving for a down payment is a personal decision. What are you comfortable with? Remember, taking on a mortgage payment is a big responsibility – one that lasts for the next 30 years, possibly.

If you feel better making a large down payment, then save for it. If you don’t mind borrowing a large percentage of the sales price, get out of debt. Your mortgage interest rate will likely be much lower than any interest rate you pay on consumer debt. Get yourself out of it and stay out of it as long as you can.

If you can find the perfect balance between paying debt down/off and saving for a down payment, it’s ideal. You can have equity in your home, not feel overwhelmed with the monthly payments, and get the best of both worlds.

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What Down Payment Assistance Programs Exist for Police Officers?

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Police officers put their lives at risk for the greater good of the community. They deserve to be able to buy a home in the community that they serve.  Many government and HUD programs make it possible for police officers to get the financial assistance that they need.

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The Available Grants

  • Golden State Finance Authority Down Payment Assistance – This program offers police officers in California a 5% down payment grant. Police officers must secure FHA financing in order to be eligible for the grant.
  • Washington DC First Responder Program – Police officers can receive up to $10,000 in down payment assistance. You must have a five-year service obligation and live in the property as your primary residence for five years.
  • Georgia Dream Program – Eligible first responders may receive up to $5,000 for a down payment with the possibility of an additional $2,500.
  • Home in 5 Advantage Program – Eligible first responders can receive up to 4% of the purchase price of a home as down payment assistance

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HUD Good Neighbor Program

The HUD Good Neighbor Program is for anyone that serves the community and purchases a HUD-owned home. HUD designates certain homes for this program periodically. The homes are located in areas that need stimulation and could use the positive influence of our community providers.

First responders that purchase a Good Neighbor Home get a 50% discount on the home, but they must meet certain criteria. First, you must live in the home as your primary residence for 3 years. During that time, the 50% discounted portion of the home sits in a silent second mortgage. You don’t make any payments on it and it doesn’t accrue interest. At the end of the 3 years, HUD forgives the second loan and you are free to do with the home as you wish, including sell it.

Each state has its own down payment assistance programs for first responders as well. Check with your state and local government to see what options may be available to you.

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What Comes After Final Underwriting Approval?

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You finally hear the words you’ve always wanted ‘you have final underwriting approval.’ Many people breathe a sigh of relief at this point. But it may be a bit premature. While it does mean that you tackled many mountains, it’s not the end of the road just yet. The final underwriting approval is just another step in the underwriting/approval process.

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So what happens now and what exactly does it mean? We help you understand the terms below.

The Definition of Final Underwriting Approval

Final underwriting approval means the underwriter completed the underwriting process on your loan and you passed. The underwriter is the person that evaluates all of your documents for the loan. This includes your pay stubs, W-2s, tax returns, asset statements, employment documents, appraisal, and credit report.

The underwriter goes through a series of steps to get to this point. Originally, the underwriter pre-approves you for the loan. He or she does this by giving your qualifying documents a cursory glance. Upon acceptance of the pre-approval, the underwriter takes a deep dive into your qualifying documents. This is when you may receive an ‘approval with conditions.’ The lender may need further documentation to render a decision on your loan.

Once you supply all of the necessary documents, the underwriter can give you final approval. You may also hear them say that you are ‘clear to close.’

What Happens After Final Underwriting Approval?

Many homebuyers assume they are ‘in the clear’ when they get final approval, but don’t act too fast. You still have a few steps to get through. The lender still needs to do a final verification of your employment and your credit.

If you changed anything in between the time you submitted your documents and the closing, this is when the lender will figure it out. For example, if you went out and bought a ton of furniture and charged it – the lender will see it on your credit report. If you changed jobs, the lender will find out when they verify your employment before the closing.

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It’s important to keep everything status quo after you apply for a mortgage. If you do change anything, let the lender know as quickly as possible. If the lender finds out about a major change during the final steps after approval, you may lose your loan approval.

After Passing the Final Verifications

Once you pass the final verifications of your credit and employment, the lender must send you a Closing Disclosure. This document is similar to the Loan Estimate you received at the start of the loan process. The Closing Disclosure should be updated to reflect the costs you will have at the closing.

The lender must send you the Closing Disclosure at least three business days before the closing. This gives you enough time to compare the Loan Estimate and Closing Disclosure. Look closely at all aspects of the documents, comparing the fees and even the monthly payment side-by-side.

If anything changed, such as the interest rate, points, or lender fees, ask for clarification. If something doesn’t seem right about the cash to close the loan, ask the loan officer. This is your time to ask questions, have details fixed, and make sure there aren’t any surprises at the closing table.

The Final Approval

Your true final approval doesn’t occur until you sign the documents and money exchanges hands. Up until that point, anything can change. That’s why it’s so important to keep everything as stable as you can. Life happens and lenders understand that. But you must keep lenders informed of the changes in order to ensure that you get through the closing with smooth sailing.

Getting through underwriting can seem tricky, but with the right loan officer by your side, it’s possible. Make sure to stay in close contact with your lender throughout the process so that you know where your loan stands. Keep the lender informed of any changes you make and ask the same of them so that you are both on the same page. This allows you to get to the closing table with ease.

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Do Extra Principal Payments Help Your Mortgage?

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Only a small part of your mortgage payment each month pays the mortgage’s principal balance down. The rest of your payment covers the remaining parts of your mortgage payment. This includes the interest, real estate taxes, homeowner’s insurance, and mortgage insurance. What if you want to pay the principal balance down faster? Do extra principal payments actually help?

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Keep reading to find out the truth about extra principal payments.

What Happens When you Pay Extra Principal on Your Mortgage?

Paying extra towards your mortgage’s principal has a direct effect on the amount of interest you pay. Your amortization schedule shows that your initial mortgage payments are interest heavy. In other words, you don’t pay much of the principal down for the first few years. Instead, your payments cover the interest for borrowing the money.

Making extra principal payments right away can knock your principal down faster. This helps cut time off your loan’s term and interest off the total amount that you pay. The extra money paid goes to the loan’s balance. This helps decrease the balance faster than if you followed the amortization schedule.

What are the Benefits of Paying Extra Principal on Your Mortgage?

You realize two main benefits with extra mortgage payments. You pay less interest and shorten the loan’s term.

Your interest is calculated based on the outstanding principal balance. Making extra payments toward the principal decreases the amount of interest paid over the life of the loan. As you continue to pay the balance down, the amount of interest owed decreases. This can save you thousands of dollars with consistent extra principal payments.

As you pay the principal balance down, the time it takes to pay the loan off in full decreases. With less money outstanding, your regular payments pay the principal down even faster. If you start making extra payments early in the loan’s term, it’s possible to knock several years off a loan’s term. This also helps build up equity in the home faster.

What are the Downsides of Paying Extra Principal on Your Mortgage?

There’s one major downside to paying extra towards your mortgage’s principal – the opportunity cost of the money you invest. If you don’t have an emergency fund set up or have retirement savings, start there first.

Once you pay money towards your mortgage, the money remains tied up in the home until you sell the home or refinance the mortgage. If you don’t have money in an emergency savings account (at least 3 to 6 months’ of expenses) or have retirement savings, you could put yourself in a financial bind tying the money up into your home.

Do Large Principal Payments Reduce Your Monthly Payments?

Large principal payments don’t change your monthly payment. Instead, as we discussed above, they reduce the time it takes to pay off your mortgage. You will reduce the loan’s term, but the payments remain the same.

For example, if your required mortgage payment according to your mortgage documents is $450 per month, and you pay $1,000 one month, you still owe $450 every month until the loan is paid in full. You can knock as much time as possible off the mortgage term, but the payments remain the same.

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How Much Time Does an Extra Mortgage Payment Take Off?

The time your extra payments knock off your mortgage depend on several factors:

– When you start making the extra payments

– How often you make the extra payments

– The interest rate on the loan

– The loan’s original term

You can use an online mortgage calculator to determine how much time you’ll knock off your mortgage. Enter an estimate of the amount of the extra payments you’ll make to get a good idea. The key is making consistent payments and starting them as early as possible. As we stated above, your initial mortgage payments are interest-based. If you hit the principal early on in the loan’s term, you knock the balance down right away. This can result in less interest owed over the life of the loan and more time knocked off the term.

Does Paying an Extra $100 a Month Make a Difference?

Even though $100 doesn’t seem like much, it can knock several years off your mortgage if you pay it every month. For example, on a $200,000 loan with a 30-year term and 5% interest rate, you could knock your term down to 24 years and 9 months rather than 30 years. You would also save $37,068 in interest over the life of the loan with consistent payments.

So while that $100 doesn’t seem like much, if you start right away, it adds up. Just in the first year alone, you’ll pay an extra $1,200 toward the loan’s principal. Over the course of 20 years, you knock the principal down $20,000, which means $20,000 that you don’t pay as much interest on.

Can You Pay a 30 Year Mortgage off in 15 Years?

It is possible to pay a 30-year loan off in 15 years without refinancing. If you decide you want to be mortgage free in 15 years, use an online mortgage calculator to determine the payments you need to make. Use your current interest rate and outstanding loan balance to get your answer.

If you take the 30-year term but make larger payments, you get the benefit of being mortgage free sooner. But if you run into trouble (lose your job, get sick), you don’t have to worry about affording the higher payment. You can also jump back to the minimum 30-year payment in order to stay in good terms on your loan.

Paying extra money towards the principal can help you in many ways. Make sure you set yourself financially in other areas of your life before investing more money in your home. But once you are financially secure, making those extra payments can save you thousands of dollars over the life of the loan.

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Do You Need a Survey When you Buy a Home?

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A property survey can cost as much $500 on top of the thousands of dollars you already pay for closing costs. Is the property survey necessary when you buy a home?

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While law does not require it, your lender may require a survey before they’ll close on your loan. Even if you pay cash, you should consider a survey. The more information that you have before you buy a home, the better financial decisions you can make.

What is a Survey?

Let’s start with the basics of a survey so that you can make a logical decision. A survey is a professional drawing of a home’s property lines. It shows the home’s boundaries as well as the easements. The survey also includes a description of the property in words, to help you further understand the property’s boundaries and to determine if there are any encroachments on it.

Mortgage Lenders and Surveys

Most state laws don’t require homebuyers to pay for a survey. But, most mortgage lenders do require a survey. Lenders want reassurance that the home doesn’t overstep any boundaries. In other words, the lender doesn’t want anyone coming after you once you own the home because it puts the mortgage company at risk of default.

Paying Cash and Surveys

What if you pay cash for the home – do you still need a survey? Technically, you don’t have to pay for a survey if you don’t want to because you don’t have a lender to answer to. But, you should consider it. If you take the property at face value, who’s to say that someone won’t argue that your property oversteps the boundaries in the future?

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Just because a home has a nice patio, addition, or fence doesn’t mean it’s within the boundary lines. Wouldn’t you rather know before you put your hard earned money into a home whether it meets the boundary guidelines? Even though the legal description on the deed describes the property’s boundary, the survey acts as a ‘backup’ reassuring what it says in the property description. If the two don’t align, then it’s reason to worry.

Other Reasons to Pay for a Survey

If your lender requires a property survey, you have to pay for one if you want to buy the home. But what if it’s optional? What are the other reasons to pay for a survey?

  • Know if a neighbor’s fence, patio, or other amenities sit on your property
  • Know your property boundaries should you decide to add a fence or an addition to the home in the future
  • Know what areas of the land you can separate if it’s a large piece of land

A land survey protects you and the lender. While it’s an added expense, it protects you in the future. It’s a lot cheaper to pay for a survey now rather than paying to take out a section of your fence and rebuild it because you find out after the fact that it sits on your neighbor’s property.

In most cases, you will be required to pay for a survey, but if you have the option, err on the side of caution. The survey can protect you in the future or even help you make a decision before you buy the home. If the home has encroachments on its property already, you may not want the headache of fighting the neighbors about the encroachment. Knowing before you close on the home can help you make the right decision.

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The Top Things to Consider Before Buying an Old House

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Buying a house can be exciting and complicated at the same time, but buying an old house can be even more complicated. Before you dive into that rare find, make sure to consider the following factors.

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It May be Built With Hazardous Materials

Older homes were built with older materials, many of which are hazardous. Asbestos and lead paint are the two most common hazardous materials found in older homes.

Asbestos was commonly used in insulation and fireproofing material and lead paint was commonly used in all homes prior to 1978. It’s important to pay for an inspection that will determine if either of these issues exists.

Lead paint is toxic, especially for children. Experts also believe that asbestos causes lung cancer and other serious respiratory issues. Give careful consideration to the purchase of an older home that has either of these issues. If you do still want to buy the home, you’ll need either issue cared for by a professional that knows how to effectively fix the issue without putting anyone’s health at risk.

There May be Mold or Mildew Growth

Cracks, leaks, and faulty building materials all lead to water dripping into a home. If not caught and if the environment is just right, mold and mildew can grow in the home. They are most common in basements and attics where it’s dark and moist, but mold and mildew can grow anywhere including inside windows, in bathrooms, and anywhere else in the home that water leaks.

If the mold and mildew growth is excessive, it’s best to hire professionals to remove it. Trying to remove it yourself could be time-consuming and risky for your health. The professionals know how to protect themselves as well as everything else in the home to avoid spreading the mold spores.

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The Roof May be Historic

It’s common to check the integrity of a roof when you buy a home, but you may be dealing with a different problem when buying an old home. Roofing on some homes has a historic grade. This means you may have to get approval before restoring it and you may have to use certain materials according to the guidelines.

There May be Electrical Issues

Electrical systems in old homes are often as old as the home. This means they probably won’t meet today’s fire code and could pose a serious hazard. Before you assume the home has proper wiring and can handle the electrical needs that you have, make sure to have it inspected.

While having the home rewired can be an expensive investment, consider it an investment in your safety. Faulty wiring can be a serious fire hazard, which can put your home and your own lives at risk.

The HVAC Systems May be Inefficient

If the HVAC systems are as old as the home, chances are they either aren’t working or aren’t efficient. Most older homes didn’t have air conditioning, so pay attention to that important detail. While the home probably has a furnace, there’s no guarantee that it’s in good working condition or that it too isn’t a fire hazard. Having the inspector thoroughly inspect the HVAC systems can help you ensure your safety.

You May Not be Able to Make Major Renovations

If the home is in a historic district, you may be limited on the changes you can make to it. Even if the home isn’t in a historic district, there may still be limitations from the building and planning department of your city. Knowing ahead of time what you can and cannot do can help you make the right decision.

Buying an old home comes with its own issues. While you should always pay for an inspection when buying a home, you want to find an inspector that is experienced in dealing with old homes. This way you know he or she inspects every nook and cranny of the home and gives you a thorough report in order for you to make a decision.

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Do Your Research on the Builder

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Buying a new home may sound easier; after all, you aren’t buying someone else’s problems. However, there are other factors you must consider when building a new home. Keep reading to learn the top tips you should consider before signing a contract for a new home.

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You Can Negotiate When Buying a New Home

Negotiating the purchase of a new home may look a little different than negotiating the sale of an existing home. Typically, builders want a specific price for the home and they won’t go lower. They may, however, offer other incentives in order to avoid losing the sale.

If you do it right, you may be able to get the builder to cover your closing costs or give you a fat credit for options to use while in the design center. Either way, you could save thousands of dollars on the purchase of the home. While the base price remains the same, you’ll have to come up with less cash at the closing or have more upgrades in your home than you may have been able to afford on your own.

It never hurts to ask, either. The worst the builder’s representative can say is ‘no.’ Then it’s up to you – do you stay with the sale or walk away? Figure out how the price works with your initial budget. If you aren’t happy with it, there are likely other homes you can build in the area.

You Can Use a Real Estate Agent When Buying a New Home

Real estate agents aren’t just for existing homes. They can be a great resource when buying a new home, just make sure you choose an agent with experience with new home sale agents. Also, make sure the real estate agent doesn’t work with the builder in any way. You want a neutral third party that can negotiate for you and see things from your perspective.

If you do use a real estate agent, make sure you start the process off with him or her right away. Most builders have a policy that you must register the agent before you see the homes or get any information. If you wait until you’ve already been to the development, the builder can refuse to pay the agent’s commission, which could leave you without a real estate agent.

Understand the Options

Don’t assume that the model you walked through is what your completed house will look like because it probably won’t. Builders typically stack the models full of options to make the homes look more enticing. If you are unsure about what the home includes, ask to see the included options in writing.

This includes things you see, such as upgraded cabinets or upgraded trim, but also things you don’t see, like building materials. Once you know what’s included and not included, you can make a list of your wants and needs. Decide which options are non-negotiable and which you can live without.

Remember, builders typically mark upgrades up significantly, as this is where they make a lot of their profit. If there’s an option, you are on the fence about, think about whether you can add it down the road. Chances are you can get it cheaper by hiring someone on the side. Structural options may be hard to add on, but anything cosmetic or minor in nature shouldn’t be a big deal.

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You May Want an Inspection

You probably think a new home is in perfect condition, right? But they have issues too. Remember, it’s humans building the home, so the process is prone to human error. Paying a few hundred dollars for the inspection would be well worth the investment.

You may not get the same ability to walk after the inspector looks at the home if there are problems as you would with an existing home, but you’ll know what problems exist, if any. This gives you room to go back to the builder and demand that they fix the issues before you close on the home.

If the issues are serious enough, your real estate attorney can get involved in the process. He or she knows your rights and the builder’s responsibilities. If there are serious issues with things like the plumbing or HVAC system, it’s well worth taking the time to sort the situation out before buying what could be a problem home.

Do Your Research on the Builder

The internet is a wealth of information for new homebuyers. Use it to your advantage before you even visit a homebuilder. See what others have to say about their reputation and building quality. Read the good and the bad and then try to talk to people in person that own a home built by the same company.

Ask specific questions about the building process, the sales process, and closing. You want to know the good, bad, and the ugly. Buying a home is a large investment, so knowing upfront what you may be dealing with is crucial. It could make or break your decision.

Use Your Own Lender

Builders have a way of enticing you to use their lender by offering incentives, but you still may be better off with your own lender. Don’t let the builder tell you that you won’t find financing elsewhere. Find this out for yourself. We recommend securing at least three quotes from different lenders. This can include the builder’s lender if there’s enough incentive to do so.

Once you have the quotes, you can then compare the offers and make a decision. Having quotes from independent lenders helps you see what you truly qualify for and to make a solid decision. Builders like you to use their lender because they make more money and are in control of the financing. If it doesn’t work to your advantage, though, don’t be afraid to bring in your own lender.

Buying a new home is exciting, but it does require you to do a lot of work. Don’t just assume everything will be perfect since it’s a new home. Do your research and take the time to do the legwork to make sure you get the best deal when buying a new home.

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