Five Things You Should Know Before Buying a House

To put it mildly, the real estate market is in a slump these days. Buyers looking for a new home can get great deals if they know what to look for and how to ask the right questions. Here are five things you should know before signing on the dotted line.

1. Can you get approved for a sound mortgage?
The mortgage game has taken some huge hits lately, and the casualties are homeowners who had to settle for sub-prime mortgages. These poor souls are at risk of losing their homes because of unscrupulous mortgage brokers looking to make a buck. Now that interest rates are rising, many of these borrowers cannot keep up with their ever increasing mortgage payments. If you cannot qualify for a traditional mortgage, you may be better off renting until you can stabilize your credit history, job situation, and other areas of your financial record.

2. How much house can you afford?
Many people get in over their heads because they want more than they can afford. Your mortgage broker will look over your documentation and make a recommendation of how much you can afford to borrow. If the broker believes you can afford payments of $2500 a month, but you know that you cannot, look for a smaller home or one that is lacking "extras" such as a pool or three-car garage. You can always add these things later when you have paid down your mortgage some.

3. How sound is the house that you have chosen?
If you think that you don't need a home inspection because the home you are purchasing is relatively new or because the seller has told you that everything has been updated, think again. Inspectors are trained to look for hidden problems that ordinary home buyers don't think to look for. Inspectors will determine whether the appliances are in working order, if the wiring and plumbing are up to code, and even little things like whether the windows open and close properly. A separate inspection may be in order for pests such as termites. If a seller tries to talk you out of either a home inspection or a pest inspection, be suspicious of his motives. On the other hand, if you are handy around the house and the inspector finds some things that need repair, you can use these as bargaining tools to bring down the asking price of the house.

4. How much will taxes and insurance cost?
In addition to your mortgage, you will be responsible for taxes and insurance. Your mortgage company will require homeowners insurance to protect their investment in your new home. Many states in the Southeastern United States are in crisis right now over insurance costs and taxes, so be sure to research this before you purchase. Many mortgage companies roll your mortgage payment, taxes, and insurance into one monthly payment so that you don't fall behind on any of it. Take these fees into account when estimating your monthly mortgage costs. The additional costs may make that dream home just out of reach.

5. How can you save thousands of dollars at the end of your mortgage?
If you have a 30-year mortgage, you can greatly reduce the amount of interest you pay by paying extra on the principle of your mortgage from the beginning. Even paying $25 extra a month can save tens of thousands of dollars at the end of your mortgage, and several months of payments. Of course, the amount you save is dependent upon your specific circumstances - the amount financed and your interest rate. One thing to keep in mind is that, in most cases, you must specify that the extra payment is to be credited toward the principle. Otherwise, the mortgage company may put the additional amount towards your next month's payment. This will save you nothing.

Whether it's your dream home or a stepping stone to get there, making the right decisions when choosing your home can mean the difference between the American dream and a nightmare.