What You Should Know BEFORE Investing in Property

What You Should Know BEFORE Investing in Property

If you are now reading this article you are either interested in property investment or have just stumbled upon here. Either way you have come to the right place because you are about to learn everything you need to know as a potential home buyer looking to invest in property.

First off, let me start by saying I am just like any other interested potential home buyer out there looking to purchase their first home. Like with any other investment or big decision I make, I fully research the topic at hand before getting involved. This way I do not get myself involved in anything I do not want or something I did not expect (and true me the real estate lending market has plenty of surprises). So after reading this article you can expect to have the same knowledge of the real estate market as if you had fully researched it yourself!

Now if you are one of the lucky ones out there who can purchase a property with cash (meaning no financing needed) then you will probably not gain much from this article. However, If you are like the rest of us who must obtain a mortgage loan to conquer this feat, then you have come to the right place.

I will start by explaining to you the basic terms associated with a mortgage and what they mean. First is the two basic types of mortgage loans which are fixed rate and ARM (adjustable rate mortgage). The difference is that the fixed rate mortgage is locked in at the rate you start with in the beginning of the loan all the way through until the end of the loan or until you sell the property and the ARM mortgage is variable and changes with the current rates.

At this point the rates are as low as they will most likely get and locking in a current rate is your bet. This would also give you peace of mind knowing your rate will never change and not having to monitor it. Another commonly used term is the down payment. This is the original investment by the purchaser being paid towards the principal (total purchase price) of the home which helps the purchaser by paying less interest over time and gives the lender peace of mind that the purchaser will not walk away from the home down the road since they already have a large sum of money invested from the beginning. The down payment usually ranges from 5 to 20 percent of the total purchase price. You can also purchase what are called “points” which are prepayments of the interest upfront. This will in exchange give you a lower interest rate. I do not suggest this however unless you expect this to be a long term investment (15+ years). 1 “point” is equal to one percent of the total purchase price. The last term I will share with you about the mortgage is the closing costs.

These are the costs associated with completing the mortgage process and getting you into your home. They include costs for inspections, paperwork fees, lawyer fees, title fees and other miscellaneous fees. You should try to negotiate these costs down with the lender since they are usually high to begin with. You can also ask for what’s called a “sellers assist” which is where the seller pays the closing costs or a portion of the closing costs out of pocket and those costs are added on to the total sale price of the property. However, this will only work if the sale price before this add-on is below market value because the sale price cannot be greater than the appraised value (the value of the home determined by a professional appraiser determined by several factors). So now that you know the basics of the mortgage loan, it’s time to go house hunting!

The first task you should complete in the house hunting process in getting pre-approved. This is where you lender officially agrees that they will lend you a certain amount of money under certain circumstances. You will get a letter of pre-approval which will sellers take much more seriously than those without pre-approval letters. Once you have this letter in hand, it’s time to look for the right place. Be sure to have a real estate agent at your side through this process as they will protect you through the process and take care of all the behind the scenes work. They are also free to you as the seller pays their cost in commission.

Now that the finances are covered lets look at what you should want in your home. First I would suggest looking for at least a two bedroom place. This way even if you are single and have no one who would have to live with you (like me) you can still rent out the additional rooms to save money on your mortgage (or even make an income!). A newly renovated place is always nice but it would probably be cheaper to find something not as new and renovate it yourself (not to mention fun!). The key to look at when purchasing is the amount of space you are purchasing (square footage). The combination of a two bedroom or more property with 1,000 square feet or more will have the best resale value and the best chance of selling quickly.

Another factor that is very important (maybe even the most important) is the the location of the property. Let’s face it…a beautiful home in the middle of a crime infested neighborhood will not sell for as much as a less fancy home in a low crime, family oriented neighborhood. So you want to make sure that the crime rates are not too high in the area you are looking (for resale reasons and your safety) and you should also make sure that the neighbors in the area also take care of their homes.

There you have it! The basics to buying property. I hope this helps you whether you are looking to buy your first proeprty, next property or even just seeing how the system works. Good luck and happy hunting!

*My knowledge in real estate is a potential first time investor who has THOROUGHLY researched the field. Please let me know if this article was knowledgeable to you and I can publish additional ones on buying foreclosures, short sale homes, and assistance programs such as FHA loans and down payment assistance. Thanks!

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