The process of purchasing a home is somewhat complex and time-consuming. Some buyers and sellers usually hire a real estate agent since they are conversant with the basics revolving around the real estate sector. As a result, they can help to handle the paperwork, help to choose the right property (such as settling the debate of buying new vs used home), and any negotiations that may arise in the process. If you are interested in investing in the real estate sector, follow this guide:
1. Have good credit
When purchasing real estate, you need to have a good credit score. You may be wondering how your credit score matters when acquiring real estate. Well, with a good credit score, you will attract good mortgage rates. As an investor, you will have good negotiating power as you seek a loan from different financial institutions. A lower score usually disqualifies different investors who may be interested in acquiring real estate.
A credit score matters during the home buying process. It may impact the interest rates and the mortgage payment plan. The good news is that even with a bad credit score, you may acquire a home within your budget.
As an investor, you should be conversant with the importance of a good credit score. You should also be conversant with how you can improve your credit score.
With a bad credit score, the available options include hard money and private money loans. In this case, you are supposed to rely on traditional financing methods—the main focus on acquiring an asset-based loan from a private lender. You will then agree on the payment terms depending on the amount you need and the interest rates.
2. Having a 20% Down Payment Vs. PMI
When purchasing real estate, you can opt for private mortgage insurance or down payment. In this section, the 20 percent down payment is just a random figure. In some instances, the down payment may be as low as 6 percent. It all depends on the loan program that you have opted for.
The down payment is dependent on the type of mortgage you have. The most popular mortgage options require a down payment ranging from three to five percent on a house worth at least $250,000. In this case, the down payment will range from $7,500 to $ 12,500. If you have applied for an FHA loan, the down payment will be 3.5 percent.
To avoid mortgage insurance, you should opt for a 20 percent down payment. For a house worth $250,000, the down payment will be $50,000.
3. Hiring a Good Realtor
As a home buyer, the main focus is on acquiring a home, and taking the time to do things like check out these new homes to see if these types of property could be an option for you. As a seller, the main focus is on selling the house for a considerable amount of money. The buyer and the seller have the same goal, which is closing the sales deal. Each party can gain significantly from procuring the services of a realtor. However, their reasons for hiring a realtor may differ. We will now look into the main reasons why you should hire a good realtor:
• Ensuring there is Confidentiality and Privacy
A real estate agent always has the back of the buyer and the seller. The realtor is obliged to put the interests of their clients first. In this case, they should ensure there is confidentiality. As a buyer, your financial details should not be disclosed to the seller. The details of the seller should also be confidential.
• A Realtor Knows What to Look For
As a buyer, you have expectations about what you need. For instance, you may be looking for a house with a certain number of bedrooms and even a garage. The main advantage of dealing with a realtor is that they may shed some light on some of the factors that you have not considered as a home buyer.
The realtor will alert you about some of the issues that may not have crossed your mind. For example, they will inform you about roofing and furnace issues. The experience and knowledge that a real estate agent possesses usually prove to be invaluable in such instances.
4. Have an Inspection Done
Before purchasing a house, you should procure the services of a professional home inspector. Well, the services offered by a professional home inspector are somewhat expensive. It may be expensive; however, it is worth every coin.
What does the Home Inspection Cover?
Home inspectors have varying experience levels. A good inspector is supposed to examine different components of the house and come up with a report of their findings. Some of the points that the inspector should note include:
- Whether the present problems pose any safety issues.
- Whether there are items that need to be replaced.
A professional home inspector is also supposed to offer some advice regarding routine home maintenance. Once you’ve had this consultation with your home inspector, you should look to hire an experienced Real Estate Attorney who can summarise the inspection report and use it as part of the sale contract. This way, if anything about the property turns out to be different from the inspection, you can pursue compensation from the seller as they will have signed the contract acknowledging that the inspection states certain things about the property.
5. A Realistic Budget.
When it comes to real estate investing, you should not purchase a home beyond your budget. The average price of a home will vary from one state to another.
Purchasing a home may be the largest purchase you will ever make. As a first time home buyer, you may consider consulting a mortgage lender. They will take your expenses into account, among other factors, and provide you with a realistic budget.
Setting a budget for purchasing a home entails more than seeing if you qualify for a mortgage. To determine whether the home of your choice is affordable, you should calculate the debt-to-income ratio, and it entails dividing your gross income against the monthly expenses. As a homeowner, you are also expected to incur additional costs, such as property taxes, homeowners’ insurance, and catering to repairs. To afford a home, you should also issue a 20 percent down payment to avoid private mortgage insurance since it is costly.
6. Single-Family home vs. Condo Investing
If you consider real estate investing, you may be torn between acquiring a condor or a single-family home. Well, a single-family home is preferred over a condo because of the following factors:
- No Condo Fees- A condo may prove costly compared to a single-family home regardless of the size. For starters, a condo will attract special assessments and membership fees that is paid monthly. The fees may increase over time.
- Appreciation potential- Some people usually speculate that it is easier to maintain a condo and have a higher appreciation potential. Although the condo has a high appreciation potential, the annual costs are also high. As a result, it is safe to say that a single-family home has higher appreciation potential and will attract less annual costs. The developers are the main individuals that usually gain from the sale of the condos.
Is the Home Good for Airbnb?
Deciding on a suitable real estate investment strategy may take time. If you own rental property, you may rent it out to a single-family through platforms such as Airbnb. As an investor, you are supposed to weigh your options and determine which strategy suits your needs.
As for Airbnb, it is regarded as a short-term rental strategy, and it is suitable for short-term tenants who want to occupy a single-family home for a few days. The property should be furnished, and the real estate investor is supposed to cater to the utilities and additional costs.
With Airbnb, you can easily earn a higher rental income. As the property owner, you can decide on the most suitable price that you should charge for your home. The prices may fluctuate depending on the demand and supply curve. For instance, during the holiday season, the prices may be higher.
Final Thoughts
Owning a home is a dream for many, and is definitely attainable with proper planning. However, the dream of owning your own home may turn into a nightmare if there are some miscalculations during the purchase process. The first-time home buyers are bound to experience some challenges. When purchasing a home, make sure it is affordable, and it should be within your budget. You should also consider factors such as monthly mortgage payment rates.