A Suze Orman exclusive

If you have any desire to get the most out of your housing dollars, you need to buy smart. Overpay today and you will be harder-pressed to make a profit when you sell. Overlook problems with a home you are bidding on, and you could find yourself in a serious financial fix, due to the high cost of home repairs and upgrades. The absolute worst thing you can do is let the frenzied atmosphere cause you to move so quickly to “grab” a home in a hot market that you end up making a lousy investment.

Here is your Must-Do List before buying a home:

• Scope out the market. You need to really understand the current temperature of your housing market. Just because your friends bought a place six months ago and had to bid 10 percent above the asking price to land their desired home doesn’t mean you need to do the same. The market may have cooled down; or, it may have heated up. The point is, you won’t know unless you look closely at recent home sales. Check both the newspaper and online sites. And sure, ask your real estate agent for her take on the market pulse. But don’t solely rely on the agent. Do your own homework. Keep track of sales over a month or so. If the trend over that period is that homes in your price range are selling above their initial asking price and are staying on the market for less and less time, then you are in a seller’s market. If homes are staying on the market longer and are selling below their asking price, you are in a buyer’s market.
  
  
• Get comped. Once you find a property you want to bid on, ask your real estate agent for two or three “comps” (short for comparables) of recent home sales in that neighborhood. You want to understand what homes actually sold for in that neighborhood. Those sale prices are an important tool in setting your bid.
  
  
• Have a complete bid strategy. The initial offer is just that: a first step. You also need to have a plan for how you will deal with a seller’s counter-offer and what you will do if there are multiple bidders for a home you want. If you are in a seller’s market, you should not bid on homes where your initial bid is at the upper limit of what you can afford. You are just setting yourself up for disappointment if you can’t afford to go any higher during the counter-bidding process. If you are in a buyer’s market, use all your market research and comps to determine a price you feel comfortable paying. Then reduce your bid five or 10 percent below that level to give yourself some negotiating room should the seller make a counter-offer.
  
  
• Inspect and verify. The contract you sign to buy a home must include a home inspection contingency clause. This means the deal will not be finalized until an independent contractor you hire gives the house a thorough going-over. You want to know if the structure is sound, or if you’ll need to repair the roof or fix the foundation. If the kitchen is being sold with the dishwasher and oven, you want to make sure they are in good condition. And so forth. I also strongly recommend that you tag along for the inspection; you will learn so much about the home simply by following the inspector around and asking questions like: How new is the electrical system? Is there any structural concern that would make you think twice about buying the house? And a good inspector will even show you things that aren’t a big problem, but that you need to keep an eye on.
  
  I would ask friends for inspector recommendations, rather than real estate agents. Remember, agents want to get the house sold ASAP, so they aren’t going to suggest you work with a home inspector with a reputation for being really careful and tough. But that’s exactly the sort of person you want giving your prospective home a thorough physical.
  
  If the inspection turns up any big-time problems, you and the seller must come to an agreement on how to deal with the repair. Either they pay for the repair themselves before the sale, or they agree to reduce the sale price to compensate you for the cost of the repair. That move can be a bit risky; make sure you get at least two estimates for the repair. If the seller knocks $3,000 off the sale price to cover a needed repair, but the actual work costs you $5,000, you just lost $2,000.

• Be nosy. During the inspection I want you to flip every switch, turn on every faucet, open every window, and check every outlet (you can use your cell phone charger as a portable power tester). I also want you to move any furniture that’s up against a window; the couch could be hiding a leak in the wall. Likewise, I have seen homes that were “staged” beautifully, but when the huge armoire was removed in the bedroom it seems the painters never bothered to paint behind it. You get the idea: check out everything. And be especially thorough in the bathroom. Is the water pressure good? Does the shower heat up quickly? If not, those are signs you may need to upgrade the water heater. And that’s something you will need to budget for.
  
  
• Get the right mortgage. Okay, you already know why I think interest-only mortgages are your worst move. So now let’s quickly review your best moves. A 30-year fixed rate mortgage is the lowest-risk move. The interest rate you get on day one won’t change a hair for the life of the loan. If you can somehow swing it financially, a 15-year fixed rate is even better. Not only is the interest rate typically a half a percentage point below the 30-year, but you will save a ton in interest payments because of the shorter payback period. Your next best bet is to get a hybrid mortgage where the rate is fixed for a long initial period—say. seven or 10 years. And one final mortgage warning: a one-year adjustable rate mortgage is just too risky unless you plan on moving within a few years.
  
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