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The great French scientist, Louis Pasteur, famously said, “Fortune favors the prepared mind” — meaning that true advances come from being knowledgeable at the beginning of an endeavor. Today’s home buyers are taking this advice to heart. They’re doing more to educate themselves on the market, narrowing their search process using online tools and, in many cases, handling more of the home buying tasks themselves with an assist from technology.
But it’s still a complex process, especially as buyers think through issues like the state of the economy and interest rates as well as practical considerations like:
- Is it the right time for me to buy a home?
- What are the best financing options available to me?
- How much should I offer and what terms should I propose?
Here are three key areas where technology, information and personal due diligence can help buyers become more informed about the home buying process and secure the best deal on their dream home.
Finding a home
This is because the online real estate world is making it easier than ever for buyers and sellers to become more self-reliant throughout the entire process — from finding homes to completing the purchase or sale. No longer are buyers completely beholden to agents. Instead, they can do their own research, understand the pricing dynamics and future value projections in the neighborhood where they want to buy and schedule house tours on their own.
A real estate professional can certainly help with technical aspects of the process, but buyers should evaluate what they can handle on their own and take advantage of commission-saving limited service models if they don’t require full service.
Financing a home
Smart buyers should conduct their due diligence to figure out what is within their budget and evaluate the best options for financing a home. There are a few key points to consider whether you are a first-time home buyer or an existing homeowner.
- Don’t overlook renovation mortgages. FHA’s 203(k) program and Fannie’s HomeStyle Renovation Mortgage enable buyers to leverage part of their home loan to fund renovation costs. As home prices continue to appreciate throughout the country, more people may find themselves turning to fixer-upper homes and could benefit from this type of financing. This program can also make buying bank-owned homes in need of improvements a more viable option.
- Consider taking advantage of today’s ultra-low interest rates to minimize your down payment. It’s likely that inflation will exceed the interest rate being offered on 30-year loans, so locking in at today’s rates could prove to be very profitable over the long run. This will allow you to put more of your savings in investments that go up in value with inflation such as a diversified portfolio of stocks.
What’s more, it’s important for home buyers to recognize that when they buy a home, they are tying themselves closely to local economic trends. If the economy declines, home values drop. Smart buyers should consider the long-term potential of their local economy to ensure that their home’s value will stay stable or increase over time. Buying a home in a declining regional economy, even if it’s a good deal, is rarely a decision that will pay off because that property’s value is also likely to decrease. If you are unsure of market stability, you should consider rent-to-own lease options.
Home buyers are catching on to this issue. According to National Association of Realtors, 40% of repeat buyers and 66% of first-time home buyers are putting less than 10% down.
- Anticipate added “fees.” As soon as you embark on the home buying process, you will begin to realize the number of fees that stack up. Here’s the short list: loan fees, real estate agent buyer/seller fees, lawyer fees, inspection fees, appraisal fees, conveyance fees, mansion taxes of 1% in certain states and much more.
These fees vary, but they all represent added costs to the purchase price — and this doesn’t even factor in any renovation expenses. It is best to buy a house at less than your budget to ensure your new home doesn’t make you “house poor.” For homes valued at around $300,000, you should budget roughly 1% of the purchase price to cover fees, excluding commissions.
Making the offer on a home
The Consumer Real Estate Index survey found that 27% of home buyers would make a purchase offer online, and it is likely that this figure will grow as more consumers get comfortable going online for real estate transactions.
Regardless of how the offer is made, once it’s approved — contingent on inspection and other factors — you’re now almost at the finish line of the closing process. The good news? New mortgage disclosure rules that went into effect in 2015 add transparency to this process.
These new rules are called “TRID/RESPA,” and the acronym is a mouthful. It stands for the “Truth in Lending Act/Real Estate Settlement Procedures Act Integrated Disclosure Rule” and was established by the Consumer Financial Protection Bureau in 2015.
Here’s what’s important to keep in mind: The rule is designed to help consumers understand their loan terms so there are no surprises throughout the closing process. But buyers should recognize that TRID may slow down the closing process or require a longer waiting period than in the past, which are all connected to the regulations’ aim of consumer protection.
Given the gravity of the home buying transaction, which is often the largest single financial transaction in a person’s life, it’s best to work with a loan officer with whom you feel comfortable and who can help guide you through the process. Also, be willing to shop around for loans. Your bank may not offer programs that are ideal for you, and sometimes the best rates can come from unexpected places such as credit unions or virtual banks. Lastly, innovative lenders often offer a more streamlined and convenient digital document process.
Whether you’re using technology to save time and money or navigating the lending landscape with better knowledge of your rights and opportunities, the bottom line is that it pays to get more informed and educated about the home buying process from the start.