This blog contains some simple tips and advice from two regular guys. We're not accountants, financial advisors, or brokers, so follow, ignore, or discuss our ideas as you see fit.

Tuesday, August 12, 2008

Some House Hunting Tips

Posted By Paul

I recently saw a show on the Home and Garden Network called 'My First Place'. Where they follow a person or family through the process of buying their first home.

In the one episode I saw, the young couple found a house they really liked with a price they were comfortable with, so they go to the mortgage company and discover that they don't qualify for as good of a rate as they had hoped, which means the price they were comfortable with is now quite UN-comfortable.

So they spent some time agonizing over whether or not they could swing the bigger payment by cutting costs in other ways. The end result is that they had to pass on the house and keep looking. It had a happy ending in that they found a smaller place that they liked AND could afford, but I think the episode really accentuated some lessens for house shopping:

1) Research the mortgage first. To me this seems like an obvious choice, but many people don't do this. I shopped for a mortgage first, checked rates and saw how a specific interest rate + house price translated into a monthly payment. I was then able to see how coming up with a little more down payment lowered my monthly payment and so on. Once I was comfortable with the numbers, the mortgage company "pre-approved" me for a loan of a specific amount. I had heard that there was a time where being pre-approved for a mortgage was a big plus to the seller when you make an offer, though I didn't really experience that. However, it did give me a chance to house hunt with a sense of what I could comfortably afford.

2) Don't even look at a place you can't afford. If you already know what you can afford, why look at a house that you can't? It will just make the houses you CAN afford seem smaller and shabbier in comparison, so in my opinion you just shouldn't bother.

3) Don't let yourself tip toe into something you can't afford. I experienced this a little when I went house hunting. I had my target price that I was comfortable with, but I also knew that I could go up a little more if I really wanted to. It was sooo easy to look at a house that was a few thousand above my target price, and then look at a house just a little above that, and then a little above that, and the next thing I knew I was looking at places that were well over 20% out of my price range. I had to force myself back into the range I was comfortable with.

So what happens if during your house hunt interest rates change dramatically? Well first of all in my experience interest rates don't change THAT much in a few months and if they do then you can always go back and run the numbers.

This way you won't be caught in the sad situation where you've fallen in love with a house that you can't afford.

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