If you’re like most people, you’ll shop for a house with your head, measuring rooms, calculating prices and property taxes, finding just the right neighborhood. But you’ll buy with your heart. So before you start home hunting, do a little research to make sure the house you fall for fits your needs without toppling your budget.
To determine how much you can afford, have a lender pre-approve you for a mortgage. Based on your credit score, income and assets, this pre-approval process is usually available at no cost and can take as little as a day to complete if you have all of your documentation, says John Thomas, Delaware-based mortgage and finance professional with Primary Residential Mortgage.
Pre-approval can also help you negotiate the best price for a home because it assures the seller that your loan will go through and that it will do so quickly, Thomas notes. Many sellers will reduce their prices for pre-approved buyers.
The first thing you’ll need to provide to the lender is your FICO credit score from the three reporting bureaus, Experian, Equifax and TransUnion.
Scores range from 300 to 800. Higher scores usually qualify for lower interest rates, which can save thousands of dollars in financing fees over the life of the loan. You can get a free annual credit report from annualcreditreport.com, but this will give you an overview of your credit standing that will not include your actual FICO score. You can get your reports and scores from all three credit bureaus from myfico.com for less than $50.
Keep in mind that a healthy credit score is only one of the factors that should determine how much you spend, says Beverly Ward, director of home ownership services at the Delaware YWCA in Newark.
“In addition to the principal, you should also figure in the interest, property taxes and costs of homeowners insurance, mortgage insurance, any homeowner association fees, regular seasonal maintenance expenses and other unanticipated expenses,” she Ward says. “For example, if your water heater breaks, you should have enough of a cushion to be able to afford to replace it.”
Once you have a budget in place, decide what features of a home are most important to you. Have a list of your priorities, says Jacqueline Roark of Long & Foster Realtors for New Castle and Kent Counties, including whether you want a one- or two-story home with or without a basement, how many bedrooms and baths, family room or gourmet kitchen.
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Check various neighborhoods until you find ones where you feel most comfortable. Research the area’s crime rate. (Every county has data, as do local police.) Look on the websites of the local school districts. Drive around the area at various times of the day and night. “You’ll want to find such things as are there going to be 50 million kids on your street when school lets out,” says Roark. And make sure the surrounding properties are well maintained.
If you want a first-hand perspective of neighborhood life, you might want to knock on a few doors and speak to some of the residents. Get an idea of the market values of the neighboring homes. (Thomas recommends using the website zillow.com to get a rough idea, but “it isn’t always 100 percent accurate.”)
Choose a Realtor who specializes in first-time buyers, says Linda Felicetti, broker associate at Patterson Schwartz Realtors in Hockessin. “Ask family and friends to make suggestions based on their experiences,” she says.
Before you sign on the dotted line, get a qualified home inspector to closely examine the roofing, heating and air conditioning systems, structural integrity, siding, windows, plumbing and electrical systems. You may want to add checks for radon and termites. If there is well on the property, a water check would be a good idea (a condition of certain government loan programs). In some cases, you can use the inspector’s report to negotiate a better price or require the seller to make repairs.
Because Delaware does not require licensing for home inspectors, it is best to look for one who is certified by the American Society of Home Inspectors. ASHI certification, the organization says, requires its members to have a minimum of 250 professional fee-paid inspections, adhere to strict standards in practice and ethics, and maintain continuing education courses.
ASHI-certified professional Donald Pyle, president of All-American Home Inspection Services in Newark, quotes a range of $300 to $500 for a home inspection. Todd Tuvell, another ASHI-certified inspector and president of A-Pro Home Inspection Service, also in Newark, gives an average of $315 to $360, with an additional $65 for termite, $135 to $145 for radon, and $45 to $135 for water inspections, depending on the depth of information require.
“Make sure your inspector offers the report in narrative instead of, or at least in addition to, checklist format,” Tuvell says. “You also want to have photographs included with the report.”
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The cost of utilities can be a big factor in buying a home. Talk to the owner about average year-round costs, and ask to see some sample bills from various seasons.
Most people buying homes now using one of government loan programs from the Federal Housing Authority, Veterans Administration or, in rural areas, the United States Department of Agriculture. Required home down payments vary according to each program.
FHA requires 3.5 percent of the selling price down. USDA and VA don’t require any. If you’re going the conventional route, your down payment can be as little as 3 percent, but only if your credit score is above 680, Thomas notes. Closing costs are estimated at 4 percent of the purchase price. They may be covered by the seller in the sales price.
Under the recently enacted Housing and Economic Recovery Act, first-time homebuyers can get a federal tax credit of 10 percent, up to $7,500, of the purchase price of a home bought before July 1. IRS Delaware representative Gregg Semanick describes the credit as “much like a 15-year interest-free loan.”
Depending on your income, first-time buyers may qualify for assistance from the state and federal governments with mortgage rates, down payments and closing costs. Delaware’s Single Family Mortgage Revenue Bond Program, also known as the First-Time Home Buyers Program, can arrange for mortgage financing at below-market rates or provide an “assisted loan” of 3 percent of the mortgage amount to put toward a down payment or closing costs. The state’s Second Mortgage Assistance can provide you with an additional $10,000 to put toward those costs. Detailed information about both programs is available at destatehousing.com.
To learn more, see delawaretoday.com/Delaware-Today/Delaware-Bride.