Step 1: Getting Ready to Buy

Finding the right home isn't always easy, but it's well worth the effort. And whether you're buying your first home, or your fifth, you'll probably have questions about the process.

The professionals at Silver Rock Properties want to make the process easier. Our agents, can provide the tools and information for you to make smart, informed real estate decisions.

We've prepared this tutorial as a start. For more information on Silver Rock Properties, visit www.SilverRockProperties.com

Here are six tips to help make the home buying process easier:

1. Shop for a mortgage before you shop for a home:
   Obtaining home financing is much easier today than in the past. However, most real estate professionals recommend that you obtain a credit pre-approval decision before you begin looking for a home. Once your credit is pre-approved, make sure the lender provides you with a credit pre-approval confirmation, not just a verbal pre-qualification. Then you will know the maximum mortgage amount you may be able to obtain so you'll shop in the right price range.
   
   
2. Hire a Buyer’s Agent:
   A seller's agent is hired by the seller to sell the home. In that role, he or she works closely with buyers, but his or her primary loyalty is to the sellers. A buyer's agent is committed to working in the best interest of the buyer. In practical terms, a seller's agent cannot share confidential information about the seller's financial or family situation, his or her reason for selling, previous offers that have been made, and so on. At the same time, the seller's agent is obligated to tell the seller any information that would be in his or her best interest to know-such as the higher price you indicated you may be able to pay. A buyer's agent is bound to you. He or she is charged with getting you the lowest price and cannot disclose any personal information you don't want disclosed. When you commission a buyer's agent, you usually are bound to purchase a home exclusively through him or her for a set period of time. If you buy through anyone else during this period, you will still owe a fee to your agent. This fee is typically extracted from the seller. If you are considering using a buyer's agent, it is very important to read and understand the agency agreement that details the arrangement
   
   
3. Inspect 5 to 10 houses before making a purchase offer:
   As a homebuyer, this will make you a confident expert on the features, drawbacks, prices and typical sales terms in the neighborhood where you want to buy. Open houses are the best time to quickly inspect many houses. Make sure you take careful notes about each house, even if you're not interested in buying it. Pick up all sales information so you can read it later. Then, when you find the right home, you can compare it with the others you've inspected.
   
   
4. Ask your real estate professional to prepare a comparative market analysis (CMA) before you make a purchase offer:
   The best way to avoid offering too much for a home is to ask for a written CMA. This will show you recent sales prices of comparable neighborhood homes and the asking price of nearby homes. The CMA can be shown to the seller when you make your offer. This may justify your purchase offer and show the seller why your offer is reasonable.
   
   
5. Insist that the seller disclose all defects in writing:
   This disclosure form should be easily available to prospective buyers so they can consider any defects when making their purchase offer. If the seller refuses to give a written disclosure, be wary.
   
   
6. Include home finance and professional inspection contingencies in your purchase offer:
   Although your credit may have been pre-approved for a home mortgage, be sure your purchase offer is contingent upon both the buyer and home qualifying for a mortgage. It's also wise to make it contingent on a professional inspection. If the inspection reveals serious problems, you can then cancel your offer and get your earnest money deposit refunded.

Top

2: Rent vs. Own. Which is best for you?

Buying a home may be one of the best investments you'll ever make. But how do we convince more of today's renters? We hear their arguments for not buying a home:

• It's too complicated.
• I might want to move in a few years.
• I don't have enough saved up.
• I missed out on the lowest rates.

What they might not realize is that long term, buying a home may be to their benefit. For instance, let's take a look at a renter with a monthly rent payment of $600. Over five years, they will have spent $36,000 on rent. In 10 years, that number doubles to $72,000. That's a large amount paid without any equity to show.

Top

Step 3: Your Buying Power

The amount you may be able to borrow will depend on your income, current debts, the value of the home you're purchasing, the amount of your down payment, and current mortgage rates.

Generally, your monthly mortgage payment should not exceed 28 percent of your monthly pre-tax income. Monthly payments on other debts, such as car loans, school loans or credit cards, should not exceed an additional 8 percent of your monthly income. These percentages can be higher or lower depending on the type of loan you choose, but they're a good place to start estimating.

Use our loan calculator to estimate how much home financing you may be able to borrow.

If you're borrowing power isn't what you thought it would be, how can you qualify for more home financing? The answer may not always be simple, but here are some ways to increase it:

Reduce your debts:
If possible, pay off all or most of your current debts. This will increase the maximum monthly mortgage amount for which you may qualify. If you can't pay off all debts, perhaps you can use gift income to reduce debt.

Increase your income:
Are you due for a raise? Lenders may consider the income of a pending pay raise to recalculate ratios with a written confirmation from your employer.

Increase your down payment:
Explore the possibilities of state bond programs and other special loan programs that may help you with down payment and/or closing costs.

Consider other financing options:
Many of today's first-time buyer programs specialize in stretching buying power. You could also consider an adjustable rate mortgage or balloon mortgage that would normally start at a lower rate than a fixed rate mortgage.

If all else fails, find a co-borrower:
Your qualifying limits may significantly change with the help of a co-borrower. Most often, co-borrowers are immediate family members, but some lenders do make exceptions.

Top

Step 4: The Benefits of Home Ownership

Homeownership is often referred to as the American Dream. Once you become a homeowner, you may feel a new sense of pride in your home because you've made an investment there.

If you're planning to buy, you probably have several good reasons of your own, but here are some other good reasons to become a homeowner:

Financial incentives - Owning your home can be a great investment.

Stability - Renters usually have to deal with rental increases year after year. Homeowners who have a fixed-rate mortgage know their payments for principal and interest will remain the same for the term of the loan.

Home appreciation - Houses have typically increased in value through the years. This increase is as good as money in the bank to the homeowner.

Tax benefits - Homeowners get tax breaks that are not available to renters. For example, when you itemize your deductions, you may deduct interest paid on a home, or points paid for your home. Please note, however, that points paid on a refinance may not be eligible. See your tax advisor for full details.

Top

Step 5: Income Tax Advantages of Owning a Home

The beginning of each year is when first-time buyers start getting excited. That's because they're starting to add up the extra tax savings they were never entitled to as renters.

Here are three deductions you may be entitled to as a homeowner:

Deduction for Mortgage Interest:
The interest on the money you borrow to buy a home is usually fully deductible. To claim this deduction, borrowers must itemize this on Schedule A of form 1040 instead of taking the standard deduction. By January 31, your lender is required to send you a mortgage interest statement (form 1098) which will show how much you paid in mortgage interest during the previous year.

Based on $100,000 at 8 percent for 30 years, for example, you would be able to deduct approximately $8,000 of your taxable income in the first year due to the 12 months of mortgage interest paid. Your interest deductions will decrease year after year as your loan amortizes. for someone in the 28 percent tax bracket, this would mean a hefty savings of approximately $2,500 in the first year. In effect, the tax deduction for mortgage interest subsidizes the interest rate on your loan.

Deductions for Points Paid:
When you finance the purchase of your home, you may pay a fee for "points" for prepaid interest or an origination fee. Depending on how your mortgage is set up, all or a portion of the amount you pay in points may be deductible from your taxes. The mortgage interest statement from your lender should disclose the amount that is deductible.

Deductions for Real Estate Taxes:
All or most of the real estate taxes you pay to your local government are deductible as an itemized deduction. Your lender will be sending you a year-end tax statement disclosing the amount paid on your behalf.

Unlike deductions for mortgage interest that disappear once your mortgage is paid in full, deductions for real estate taxes continue for as long as you own the home, assuming this portion of the tax law remains the same. As an example, based on real estate taxes of $2,000 per year, someone in the 28 percent tax bracket would save approximately $560 in income taxes for real estate taxes paid.

Of course, this is a broad outline of the major components involved in tax write-offs that come from owning a home. You should always consult your tax advisor for the complete picture, and to keep up-to-date on changing tax laws.

Top

Step 6: Credit Pre-Approval

Many homebuyers are finding credit pre-approval programs are an important step in the home buying process. A credit pre-approval decision provides potential buyers an opportunity to be pre-approved for a mortgage, even before they find a home.

Applying for a credit pre-approval decision is easy. If approved, you'll receive a certificate showing the maximum loan amount or a monthly payment for which they may qualify. Then you'll have 90 days to find a property. Final approval is subject to a completed sales contract when you find a home, verification of your financial status, and a satisfactory appraisal of the property.

Many lenders also offer a free estimate on how much buyers can most likely borrow without pulling an official credit report. While this is useful, the extra step of checking the homebuyer's credit report and being pre-approved can offer a lot more comfort.

Top

Step 7: Getting the Most Out of the Home Inspection

Homebuyers now entering the marketplace should view inspections as a way to gain valuable information about one of the biggest purchases of their life.

If you're in the position to do so, attend the inspection so you will not over react to any defects in the report. Your purchase decision may actually be enhanced as you learn more about the house of your choice.

Here's an abbreviated checklist for inspection:

Examine property from top to bottom. Observe and note condition of structural components such as foundations, floors, walls, columns, ceilings and roofs, to name a few.

Describe the type of foundation, floor structure, wall structure, columns, ceiling structure and roof structure.

Probe structural components when deterioration is suspected. However, probing should not be done when it would damage any finished surface.

Enter basement, crawl spaces and attic spaces except when access is obstructed, when entry could damage the property or when dangerous or adverse situations are suspected.

Report methods used to observe crawl spaces and attics.

Report signs of water penetration into building or signs of abnormal or harmful condensation on building components.