Buying Cars and Homes
Buying a Car:
Before buying a car, you should know what price you can offer and what price your new car should be.
Car dealerships will want to know exactly what add-on’s you plan on buying, if you plan on trading in your old car, need a loan, etc… It is best to avoid these questions until you have purchased the car because they might change the price based on this information.
If you need a loan for a car, the best option is from your bank or credit union rather than a car dealership because dealerships can give you higher interest rates or longer loan durations that will exceed the life of your car.
If you plan on making a loan with a car dealership, make sure to read the fine print. You can get a better deal by negotiating with an already pre-approved loan and interest rate from your bank or credit union.
A good piece of advice is to avoid add-on’s that car dealerships offer. First, they might be too expensive for their worth. Second, it gives you no time to research these extended warranties or gap insurances and call other dealerships to compare prices.
If you want an extended warranty, it is best buy it later. Instead of paying every month for an extended warranty from the beginning, you can purchase it a few years later and before the end of its warranty to save money. You also have time to research the appropriate price of this extended warranty.
If you want gap insurance, which pays for what your insurance company cannot pay after your car is totaled, it is best to purchase one at your insurance company rather than the car dealership where prices and conditions vary significantly.
Additional Information:
Avoid six or seven year loans! These durations may exceed the life of your car. 5-years is recommended for new cars, and no more than 3-years is recommended for used cars.
A statistic from NPR mentions, “car expenses should not be more than 20% of your take-home pay”. That is about 10-15% for the car.
Used cars are in a very good condition at the moment. Buying a used car is a great idea to save money.
To find the right automobile, you can research different models, take test-drives, and even after your purchase, you can ask the car dealership to provide an overview of hidden features and useful shortcuts.
Buying a Home:
Buying a home is similar to buying a car because you have a budget and an important process.
If you need a loan, lenders require proof of a stable income and employment status. If you are self-employed, they usually require tax returns.
Before applying for a loan, you can calculate your DTI (Debt To Income Ratio) which provides a percentage of how much your income goes to debt. Less than 50% is considered qualified, however, the less the better.
Credit Score is an important indicator of risk to a lender. It could determine the amount of interest and terms you receive. In general, above 620 is acceptable, above 720 would quality you for almost all loans at higher interest rates, and above 740 would give you one of the best terms.
When you pay for your house with a loan, it is likely that a down payment is required. Although you only have to pay as little as 3%, you should pay as much as possible because you will pay less in the future. You can also check the accuracy of your closing disclosure, appraisal fees, pest inspection, title insurance, and any additional payments from your loan.
Just like buying a car, pre-approving a mortgage can benefit your negotiation for the product.
You can approve a mortgage with your lender and this will determine how much you can and should be paying.
For homebuyers, conventional loans are the most popular and the down payment could be as little as 3% down. FHA’s are safer because they are government backed and they require as little as 3.5% down. VA Loans are optional for veterans and USDA Loans are optional for homes in rural and suburban areas.
It is beneficial to work with a real estate agent because they will not only translate home buying terminology: sellers will most likely pay for their commission. To connect with a real estate agent, you can contact a referral agent.
Additional Information:
When searching for home, a Rent Affordability Calculator can match you with rental homes based on your income level and monthly savings. A Cost of Living Calculator can translate your salary’s buying power in different cities and areas!
When submitting an offer for a house, you and your real estate agent can send a letter of intent with personal information, a current address, and your offer. The bidding process can be longer than expected because of counteroffers and negotiation.
Earnest money deposits are often required when someone agrees to buy a home. It is about 1-2% of the purchasing price of the home and can be lost if the buyer refuses to follow through.
Lenders often require a home appraisal to lend out an accurate amount of money. You can also receive an appraisal contingency which offers a variety of reduced risk. If the home is appraised lower than expected, it will allow the buyer to refuse the home or continue negotiations without losing your earnest money deposit.
A home inspection is recommended before your purchase because you are liable for any repairs after the initial purchase and negotiation.
After the inspection, you can request the seller to pay for certain repairs, closing costs, or request a discount on the home. The seller can refuse your requests. If you have an inspection contingency, you can refuse the home and keep your earnest money deposit if these requests are a deciding factor.
In the closing process, you sign a settlement agreement that will guarantee your purchase of the home! You can provide your own proof of funds, pay the down payment and closing costs, and sign the mortgage note (the mortgage note is ensured by signing the mortgage or deed of trust). After comparing the closing disclosure with your loan estimate that should be similar, signing the settlement agreement is the last step of the process!