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Steps to Minimizing Risk When Purchasing a Home

July 29th, 2011

With the current economy, risk is a huge factor in many financial decisions. And with news of foreclosures plaguing the market, it’s no wonder why many people consider buying a home a huge risk.

In her article “4 Steps to Minimize the Risk of Owning a Home” Tara-Nicholle Nelson offers some tips that will help to minimize risk, making buying a home a successful and smart investment.

Stick with a fixed-rate mortgage. Over the past few years adjustable rate mortgages, or ARMs, have started to make a comeback. As interest rates continue to plunge, many are choosing adjustable rates in hopes of getting the lowest rate possible without refinancing.

While ARMs are tempting, they also carry a high risk. Interest rates can rise just as quickly as they fall. For people with some financial cushioning, that risk may be worth taking. But if can’t take the emotional and financial unpredictability that adjustable rates carry, then stick with a fixed-rate mortgage. Having a slightly higher rate is worth the peace of mind you’ll get knowing that your payment is locked it for decades to come.

Get a home warranty, and keep it. Nelson hits the nail on the head when she says, “One of the most frightening things about going from renter to homeowner is the prospect of being solely responsible for the care and feeding of your home and all its systems and appliances.” When your roof is leaking, your hot water heater is broken, or your septic tank needs pumping, you as the homeowner are responsible for both the logistics and the cost.

Having a home warranty can alleviate some of that stress when escrow closes, if nothing else, especially if you purchase an older home. Depending on your coverage, a home warranty will cover things like furnaces, water heaters, plumbing issues, and roof leaks.

And Nelson adds,

“Talk with your agent – you might even be able to negotiate for the seller to pay for the first year’s cost of the warranty.  Just remember to renew it when it expires every year, to keep a cap on your risk of unexpected repair costs for the duration of your tenure as a homeowner.”

Once you get the inspection, get repair bids and estimates. After you signing the contract for your home, you have an objection period of 7 to 17 days to obtain all the inspections you desire. Before you get approved for the mortgage you’ll be required to get a general property inspection, which will offer a list of needed or upcoming repairs and upgrades – but it won’t tell you how much those repairs will cost. Try to schedule contractors to visit the house and give you bids on the work before the objection period is over. Then you can either negotiate the costs with the seller, or at least budget accordingly.

Buy with the 10-year plan in mind. Try your best to plan for the future, and only buy a home if it fits in your 10-year plan. Consider the number of bedrooms, garage spaces, and bathrooms you need now, and what you’ll need down the road.

Think about your job. Are you content with where you’re working now? Is there any possibility of relocation? As far as you know, is the position and pay stable?

Even if you don’t have children yet, look into the local school system. Could you see yourself raising children in the home and town? It may seem scary, but you need to do it. Houses don’t flip like they used to, so to minimize risk, you should plan on staying a while.

Acadia Lending Group LLC

190 Riverside Street Unit 4B
Portland , Maine 04103

Phone: 207-899-4500

Fax: 207-899-4503

NMLS: 370636

 

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