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Buy A Foreclosure: 5 Simple Tips To Get A Good Deal On A Home

Apr 11, 2008
Buying a first home is often an overwhelming endeavor. Consumers get the feeling that their financial situation is rapidly getting out of control. Buying real estate is something most people have very little experience with or knowledge about. However, buying a home can be a simple and orderly process when you break it down to the basics. The following steps can help.

1. It is vital to get pre-approved for a mortgage as early as possible. Mortgage programs and their complicated paperwork can be confusing. An early head start gives you more time to fully understand what your are doing. An additional benefit is that potential sellers know that a pre-approved buyer is a serious buyer. This will give you a negotiating edge which is extremely beneficial if more than one buyer is interested in the home you want. Mortgage pre-approval can also save a great deal of time and effort. If you cannot be approved for a mortgage presently, you shouldn't waste your time looking at homes until you have overcome your mortgage obstacles.

2. Watch out for any prepayment penalty which might be included in the loan proposals you are given by your loan originator. Accepting a prepayment penalty may cause you to pay many thousands extra if you need to sell or refinance the home during the first two to three years. Even with credit problems, you can find many loan programs which do not include a prepayment penalty. If your mortgage banker proposes a loan which has a prepayment penalty, you should most likely turn it down and continue your loan search. One caveat here, though. If your credit is bad enough that you will have no chance of qualifying for a different loan for a couple of years, you might consider accepting a "soft" prepayment penalty. This penalty would only apply if you refinance the loan and not if you sell the property.

3. As mortgage rates fluctuate over the next years, you should also stay aware of good adjustable rate mortgages. I know that you have certainly read many horror stories about ARMs, but some include strict limits on adjustments and include easy refinancing terms. If you get a really good adjustable rate mortgage, you could save many thousands over a couple of years. For example, FHA adjustable rate mortgages have strict adjustment limits, absolutely no negative amortization (your loan balance only goes down and never up), and a super simple streamlined refinance process that doesn't require requalifying if you have made your payments on time.

4. Before buying a home, make certain you know how much you can comfortably afford. Review the details of your family budget and determine how much you are realistically very comfortable paying on a home. If you already an efficient financial manager, this will be a quick process. It will surely take much longer if your finances are disorganized, but the effort will prove very rewarding. Your finances should be in order before buying a home anyway. At any rate, you should never rely on your loan officer and real estate agent to tell you how much qualify for. It is very easy for them to get you approved for a home you cannot comfortably afford. Both get paid more when you buy a higher priced home. However, they will not be there to help you make the payments later.

5. Once you have your financial house in order, take the time to become familiar with home prices in the area. Become an expert. Do research online to find out what sellers are asking and getting. Be sure to check for foreclosure homes. We are experiencing a very distinct buyer's market in real estate now. You should choose your first home more for its investment value than its dream home qualities. Do not ever pay list price. Expect to pay a minimum of 10% through 30% or more less than similar homes in the area have sold for. The greater the discount the better. This creates the greatest possible potential of avoiding the risks of buying in a down market, and the greatest odds of profiting when it is time to move up to a larger home. Never, ever, pay the full appraised value for a home and wait for inflation to build your equity. This was a losing strategy even during the housing boom. Inflation raises the value of all property. The home you hope to move up to will be getting more expensive due to inflation as well. Make your profit when you buy the home by getting a good deal right out of the gate.

The items listed above are just a few basic tips and there is much more you will need to learn to get the best deal on your first home. It is crucial to educate yourself before you get into the market. Most first time homebuyers skip this step and severely handicap themselves right out of the gate. Many previous buyers are paying the price for that in today's real estate market. Don't be scared out of the market by their mistakes. Educate yourself and you can still come out ahead.
About the Author
FHA loans are the smartest choice of first time home buyers in Georgia who want to take advantage of todays buyers' housing market
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