First Time Home Buyer Part IV

In the first three articles in this First Time Home Buyer series, we explained how to calculate how large a mortgage you can afford, and how to figure out which townships you might want to live in.  We also explained how to work effectively with a real estate agent to find your new home.

In this final article in this series, we are going to talk about pre-qualifying for a mortgage and the qualities you should look for when trying to evaluate a home's potential value.

Pre-Approval or Pre-Qualifying for a Mortgage

If you are serious about buying a home, then the seller and the real estate agent need to understand that you are serious.  The most effective way to demonstrate that you are a player in the market is to pre-qualify for a mortgage.  So what exactly is pre-qualifying or pre-approval?

Pre-qualifying for a mortgage is the process of supplying information to a lending institution so that they can figure out how much money you might be able to borrow.  That last point is important, when you are pre-qualified or pre-approved for a loan, the lender is doing some preliminary guesswork at what you might be able to borrow.  The lender will usually state in a letter what they think you should be able to borrow, but there are no guarantees.

This means that you can still be turned down for a mortgage, but when you have a prequalification letter, everyone should be more comfortable that you stand a very good chance of getting a loan of the size stated in the qualification letter.  The actual mortgage application process is much more thorough, and only then is the lender willing to commit to an exact mortgage amount.

Evaluating a Home's Potential

Many homes are sold in "move in" condition.  These homes have been maintained well by the owner, and the interior has been kept up-to-date.  Bathrooms are modern, the kitchen is of a newer style, and the home needs only new wallpaper or a fresh coat of paint to match the new owner's tastes.

On the other hand, there are many homes that have not been updated for a variety of reasons, and they need an injection of serious money to bring the home up to modern standards.  Sometimes these homes are quaintly labeled by real estate agents as a "fixer upper."  The problem is that most first time home buyers have no idea how much money home repairs can cost.  So we'd like to give you some hints on how to figure out if problems are cosmetic or structural.

Cosmetic Problems in Homes

Cosmetic problems are the least costly to repair, and can sometimes be repaired by the home buyers themselves if they are handy.  Typical cosmetic problems include old carpeting, out-of-date paint on the walls, peeling wallpaper, and hardwood floors in need of refinishing.  Cosmetic problems tend to be on the surface and do not require ripping the home apart to repair.

Structural Problems in Homes

Unless you are a carpenter, electrician, or plumber, most structural problems in homes are costly to repair.  These problems tend to be more around the infrastructure of the home; things that hold the home together or provide essential services in the home.  These problems may require tearing down of walls or ripping up floors.

Be suspicious if a homeowner has just painted a ceiling that is below a bathroom because this type of repair could indicate leaking plumbing above the ceiling.  Take a look at the electrical box.  Is it modern with circuit breakers, or does it have a fuse box?  Does the bathroom need a fresh coat of paint or do all the fixtures and tiles need to be replaced?  Look for tilted floors, cracked walls, and broken foundations that might indicate the home is shifting or settling.

Turn on faucets and flush the toilets to see how the water drains and to gauge water pressure.  Look at the water itself or for rings in the sink and bathtub that might indicate rusty pipes, which means the home may have older iron plumbing or a problem with the service line from the street.  When you are looking at a potential new home, don't be afraid to "kick the tires" a bit, after all, you might be buying that home!

Ask questions, many questions.  The real estate agent is obligated to tell you about major structural problems with the home, pay attention if they state something in passing like it is not a big deal - it could be.  Take a closer look if you need to.  Ask about the roof, the plumbing, the electrical system, septic tanks, propane or oil tanks, and well water pump if the home has one.

Help Estimating Home Repairs

Even if you've made an offer on a home, find someone that can help you figure out what repairs might cost you.  A knowledgeable relative, or a nearby general contractor, should be able to ballpark the costs to bring the home up to your standards.

You will likely be required by your lender to get a home inspection before you finalize your offer.  This inspector will help look for termite damage and other hidden problems.  Take their report seriously, and ask a lot of questions.  Once you've finished buying that new home, you want to enjoy living there and you don't want to feel like you own a money pit.

Buying a home is a big decision, and it is usually the largest single purchase decision you will ever make.  Don't be embarrassed to ask questions or seek the help of others.  Do your homework, and you will feel more secure that you got the best deal possible.

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