While kids eventually empty your nest, they'll always depend on you for your sage wisdom -- and the occasional handout. You have always been their most trusted advisor and that rarely stops, even when your children become adults. Just as with recipes and relationship tips, the things you've experienced when it comes to real estate should be passed onto your kids as they prepare to enter the world of home ownership. Because so much is at stake with a home purchase, your experience is important. Here are 10 tips that you can pass on to your kids as they make the move to buy their first home.
Your child may have certain wants and needs when buying a house, but what really matters most is that the monthly note is affordable. First-time home buyers may not consider all of the extras that go into home ownership like closing costs, insurance, property taxes and financing fees. Make sure your child has a good handle on exactly how much they can afford to plunk down each month in order to own that renovation special in the up-and-coming neighborhood. And don't forget to budget the pesky additional expenses like utilities and upkeep.
This one is actually where you should start. Many people are charmed into the idea of home ownership without really considering if it's the best move at the time. Your child may be better off renting for a few more years rather than taking on the burden of a mortgage. Ask your kids important questions like, "Are you prepared to be tied to this house for the next 30 years?" Or if they're looking to flip the house for a profit, "Are you ready to put time and money into what could be a risky investment?" If they give you blank stares in return, then renting might be the better option. These are just a couple of examples of the many questions that your child should consider before making the leap and signing on the dotted line.
Before your child charges into a real estate purchase with checkbook in hand, you should walk him around his or her neighborhood of choice to check out comparable homes. There's an old saying in real estate, "You don't want to own the most expensive house on the block." You also may not want the least expensive, and checking out the comps will allow you to figure out where you fall in between that range. Look for houses with equivalent square footage, and a similar number of bedrooms, bathrooms and amenities. The prices on those homes should be comparable to how your house is priced. Beware of properties that are unusually high or low.
It's always a good idea to check the real estate climate when looking for a new home, meaning is the market better for a buyer or seller. Things can change pretty quickly in the volatile real estate market, particularly in certain neighborhoods. Your wisdom as a parent will give you some general insight to share, but Junior will also need some specifics about the neighborhood he's looking to buy in. If you aren't familiar, then direct your child to a local real estate agent for a meeting. A good agent will be honest about things like the local climate: who's buying, who's selling and what kind of houses are moving the fastest.
Closing costs are something that your child may not be aware of, or may not consider as an expense. These costs can range anywhere from 3-to-6 percent of the cost of the loan, which can be a large chunk of additional cash due at closing. Use your experience as a parent to guide your child through the closing cost negotiations. Many times the buyer can either split the cost with the seller, or if the seller really desperate to close, they may cover all of the closing fees.
Hiring a good home inspector is a vital step in the home-buying process. As a parent, you know this, but your free-spirited child may not. It's your job to encourage him to get a qualified home inspector to check out all of the nooks and crannies on that renovation project he's about to sink his life savings into. These inspectors are trained to check things that your average first-time buyer probably wouldn't consider, like the state of the roof or whether the foundation is sagging. Make sure your child chooses a licensed inspector, after shopping around and getting references.
One thing that your child may not know is that there are programs out there tailor-made for a first-time homebuyer. The Federal Housing Administration, or FHA, is there specifically to help first-time buyers, so make sure your kids know about it. The programs the FHA offers typically call for low down payments and even allow those down payments to come in the way of a gift from a family member. Plus, FHA-assisted loans are generally a bit more flexible with your credit scores than your average bank might allow.
Your child may be looking at houses simply by driving around his or her desired neighborhood and looking for for sale signs with balloons hanging from them. If this is true, then your child is overlooking what could be a very good deal. Many times foreclosures are a great way to go for a first-time buyer because of how much cheaper they are. After the housing bubble burst, many homes were left to the banks, and somebody else's financial mistake could be your child's gain. Walk your kids through some foreclosure Web sites or check into local foreclosure auctions. These typically happen on the steps of the local courthouse on a monthly basis.
You may find that your kid is either eager to buy in a transitional neighborhood that's still at the beginning of its refurbishment or is looking at a trendy neighborhood where the dollar doesn't go as far. Explain to your kids that finding the right balance is the key. If they want to buy cheap in an up-and-coming area, then check out the comps nearby and what kinds of returns home sellers are getting. If they want to be in that hip 'hood, then maybe look at a lower-cost option, like a condo or duplex. The goal is to find a neighborhood that makes sense for the long term, something your child may not be used to considering.
Before your child starts home shopping, make sure he knows his rights as a borrower. Things like disclosure of how much money the lender stands to make, the reason your child's loan was not approved and which fees are refundable if the loan does not go through are all important to know. Spend some time with your kid in front of a computer -- the government's Housing and Urban Development (HUD) Web site can walk you through all of the rights that a first-time buyer should expect.
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- "7 tips for first-time home buyers." msn.com, 2011.http://realestate.msn.com/article.aspx?cp-documentid=13107818
- "First-Time Homebuyer's Basics." realtor.com, 2011.http://www.realtor.com/home-finance/buyers-basics/home-buyers-basics.aspx?source=web
- Hawkins, Asher. "Ten Tips For First-Time Home Buyers." forbes.com, January 29, 2010. http://www.forbes.com/2010/01/25/tips-first-time-homebuyer-personal-finance-mortgage.html
- "How Much Can You Afford to Spend on a Home?" freddiemac.com, 2010. http://www.freddiemac.com/corporate/buyown/english/preparing/right_for_you/afford.html
- "Mortgage Borrowers' Rights." hud.gov, 2011. http://portal.hud.gov:80/hudportal/HUD?src=/program_offices/housing/rmra/res/resborwr
- "What is a FHA Loan?" fhs-home-loans.com, 2011.http://www.fha-home-loans.com/what_is_a_fha_loans.htm
- "What is included in typical closing costs?" howstuffworks.com, 2011.https://home.howstuffworks.com/real-estate/what-is-included-in-closing-costs.htm