4 Tips for Buying Your House
I am a planner at heart, so when I decided to take the plunge and buy my first house a couple of years ago, I set out to do it right. What I found is that there are multiple ways a home purchase can go wrong, so having a good process can go a long way to minimize the chances of a bad experience. Thankfully, I had a great experience, and that’s my hope for you, too! Here are 4 tips to help you out along the way:
1. Plan the House
Consider the pros and cons of buy versus renting. The initial costs of buying are pretty high so the longer you stay in the house the greater the benefit. If long-term ownership is not in your plans, buying may not be for you.
Make your list of needs and wants in a home. This is pretty standard, but adding layers of priority to this list can help you make a decision when it comes time to negotiate.
Prioritizing is a must when buying as a couple with competing interests. As you start to view houses make sure to review this list. Some items might end up lower on the list, other items may become a must, or your list may grow. The steepness of a driveway was not on my radar until I showed up to view a house with a driveway so steep that I decided to just park on the street. Although I viewed the house, I realized there was a big problem when I found myself having a conversation with the realtor about how much it would cost to redo the driveway. Answer: it’s not worth it.
Choose the neighborhood you want to live in. Looking back two years later, I see that I did not place as great of importance as it turned out to be. This is now higher up my list for the future!
Plan your savings. This mainly revolves around all the up-front expenses associated with buying a home. This includes:
Down payment. If you can give a 20% down payment you will save yourself the hassle of paying mortgage insurance. It’s a big deal. If that is not a possibility, there are other options that could allow you to do as low as 0% down, but you end up paying a higher interest rate because of it.
Closing costs including but not limited to:
Attorney fees
Pest inspection fees
Appraisal fees
Escrow fees
Title insurance expenses
Discount points
Home inspections. Depending on how many homes you end up making an offer on you can expect to spend $300-$500+ for each inspection. I had a home inspected recently; it cost me $425 to do the inspection, but it ended up revealing foundation issues that the seller would not fix and would not adjust the price for. I walked away from the deal with less money in my pocket, but I had the satisfaction of knowing it would have cost me so much more in the long run.
Furnishings. While you don’t have to furnish your entire new house all at once, it is still costly to purchase the essential appliances and furniture you will need. Make sure to shop around to get an idea of what you will want and how much it will cost. I did most of my shopping at flea markets and Facebook marketplace, which allowed me to save quite a bit.
Taxes. Most people include this in their escrow, but it will be something to consider if you would rather pay your taxes out of pocket.
2. Plan the Financing
Do your research regarding loan options. This is especially true if you are working with a lender that you don’t know personally or is not a close connection. Like individual investors, each lender has a different risk tolerance, so you may be able to find a better deal beyond the first person you check with.
In addition, first-time home buyers have some extra perks, like loans with smaller down payments and less stringent credit requirements, that most buyers will want to consider.
Set a budget. Make sure that you are not buying a house that will use up all your disposable income. Remember that as a rule of thumb, you want to keep your debt-to-income ratio at no higher than 40%. If you have other debt, don’t forget to include that in this calculation.
Get prequalified. Pre-qualifications usually last 4 months or 120 days. The important part here is that a seller will not take a buyer seriously without a pre-qualification letter. Adding to that the fact that the post-covid housing market is so hot that sellers are getting offers before their house even hits the market, you don’t want to miss out on your dream home due to this significant step. This step will also help you identify how much the lender is willing to let you borrow.
Talk to your lender about doing a 15-year mortgage instead of a 30 year. In most cases, this will save you substantial money in interest payments.
3. Plan Your Team
I can’t stress enough the importance of having a good team in place to help answer your questions. I would have been lost without my team of professionals to answer all my questions from large to the minute details. What’s more is that if you have a good team, they will walk you through all of these steps in the process. Here is what to look for:
Real estate agent: I got lucky with mine because I went to high school with her. But what makes her great is that her mother is also a realtor so she knew the industry and her father is a builder so she could also talk shop when it came to home defects and cost to repair. Additionally, she grew up in the area and knows it well, and over the years had developed her network of professionals so she had a guy for every need. However, what makes her exceptional is that she is a caring person, which I think makes a big difference. She took the time to explain things to me and played a big part in helping me develop my picture of the ideal home.
Handy man: If your real estate agent doesn’t have one, it is important to have one on speed dial to help you understand if a defect might be a dealbreaker or a simple fix and then make quick estimates of repairs the house might need.
Lender: Here you are really just looking for someone who is timely and professional.
Title company: Make sure to work with someone who is detailed and has a solid track record of no incidents. The last thing you want is a bank calling you up because there is an outstanding lien against the property that was not disclosed in the title search.
Inspector: Here you want someone who is thorough and timely. As I mentioned earlier, inspections are not cheap, but they are much cheaper than the big mistakes they help avoid.
4. Plan Your Strategy
This mainly refers to your game plan for negotiating. Everything from the moment that you get the inspection report, to making the first offer, to requesting to convey certain home items like appliances. Each step takes multiple things into consideration and again a good agent will help you through that process. Ultimately, decide to stay within your budget and don’t be afraid to walk away if it just doesn’t work financially. A dream house can turn into a nightmare if it takes away your financial peace of mind.
Being over 2 years out now, I can look back and see what I would have done differently but in the end, I am more than satisfied with my purchase and I hope these tips will give you the same result.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.