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Understanding The Home Buying Process!

Although it is prudent to use a 20% (of the purchase price) down payment, there are many examples where this thinking can cost a buyer a lot of money. For instance, if you continue to rent for an extra year to save for the large down payment, the real estate market may have increased the price of that home by 10% or more. On a $500,000 home, this means the buyer has to pay $50,000 more because they waited. In addition, significant tax reductions are lost during the extra rental year.

If you want to expedite your path to home ownership here are some creative ways to finance your purchase:

• Use a home equity line second mortgage. Many borrowers with good credit can couple a traditional 80% mortgage with an interest only home equity line at or near the prime rate with as little as 5% down. This also avoids mortgage insurance costs and provides a much better interest rate than risky low down loans.
   
• Borrow from your 401k or IRA. IRA funds can typically be rolled over for 60 days. This will allow you to close the transaction and pay back your IRA later to avoid taxes and penalties. Some 401k plans allow you to borrow money from yourself to buy a home. Although many financial planners frown at early withdrawals, first time homebuyers can avoid the 10% penalty for up to $10,000 if the funds are used to buy a home. If the market is going up, the tax savings and property appreciation more than justify paying the extra tax.
   
• Use funds from relatives.

• Excellent credit: 730+
• Good Credit: 680+
• Average Credit: 600+
• Poor Credit: 500+

Scores below 680 will result in a higher interest rate and may disqualify a borrower from low down payment loans

1. Schools. Even though less than 40% of American households have school-age children, most single family housing demand is created by families. Schools which possess good conditions and high test scores are going to make their surrounding neighborhoods more appealing to buyers.
    
2. City Appeal and Amenities. Certain cities command a level of prestige through a combination of lifestyle amenities, safety, and association with high-income demographics. These cities have typically seen greater long term appreciation. In addition, certain cities enjoy a fabulous array of culture, recreation, and dining options which create buyer demand.
    
3. Traffic. When comparing home values, keep in mind that homes on quiet streets or cul-de-sacs will appeal much more to most buyers than homes with more vehicle traffic. In addition, appearance of traffic noise can also reduce a home's value.
    
4. Sun Exposure. Dark homes never sell as well as light ones. Look for homes that contain lots of windows and natural light. Back yards with afternoon sun exposure are also very popular.
    
5. Floor Plan. Buyers today favor homes with open kitchens, master bedroom suites, and large great rooms. Since many homes in the coastal areas were built prior to 1980, you may find yourself looking at homes with poor layouts. In general, remember that a typical kitchen remodel can cost up to $20,000 for new appliances, granite counters, custom cabinetry, and wood or stone flooring. When you look for a home some will be updated and some will appear dated. You must account for the improvements not only based on their cost, but the hassle of managing the contractors and the inconvenience of dust and privacy intrusion. Many buyers underestimate the cost of such improvements and end up paying more money in the long run.

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