Buying a house is possibly the largest purchase you will ever make. For first-time home buyers the process is both exciting and scary at the same time. While there is a lot to think about, the process need not be too difficult. Read on for advice from others who have been there before you.
Be Financially Prepared By Saving Early
DOWN PAYMENT: The earlier you start saving for a down payment the easier it gets. By having a down payment of 20% or more you will save thousands over the course of the loan on private mortgage insurance (PMI). Plus, by getting in the habit of saving early on, you can transfer that skill to account for the costs below.
OTHER COSTS: When you buy a home you’ll need to come up with closing costs such as an appraisal and loan origination fees. Down the road you may have an annual payment for Home Owner’s Association dues, property taxes and/or homeowner’s insurance. By having a savings account to pay for such items, you can comfortably make these payments as they arise.
EMERGENCY COSTS: As a homeowner you don’t get to call the landlord whenever something needs to be fixed. You need to be prepared to replace that broken water heater, fix the AC or deal with other problems that may arise without going in to debt.
Do Your Research
GET PRE APPROVED: It does you no favors to start looking at homes until you know what you can spend. Plus, sellers prefer bids from prospective buyers who already are pre-approved for a loan. While a lender is not legally bound to honor the terms of a pre approval, by going through the process early on there are fewer surprises when it comes to the real deal.
BUDGET: Know what you can spend. It is too easy to overestimate what you can afford, so make sure to come up with a realistic budget. Typically utility costs increase when you go from renting to owning. And then there is property insurance which costs more than renters insurance. Expenses you wouldn’t have had as a renter include property taxes and property maintenance, both inside and outside. And don’t forget about living costs such as vacations, hair cuts, entertainment etc. Having a realistic budget will help you keep the cardinal rule of home-buying: Do not overspend.
UNDERSTAND THE MARKET: The housing market constantly fluctuates based on supply and demand, the condition of the economy, and interest rates to name a few. Fortunately for first-time home buyers, you can watch the market and make the move to purchase a home when it is a buyers market. Beware of waiting too long for prices to drop however, as prices can jump quickly as inventory fluctuates. Use resources such as website, newspapers, magazines, and your realtor to help you understand the market.
KNOW THE HOOD: You can change a lot about a house, but the number one thing you can’t change is its location. When you buy a home, you’re not just buying a house, you’re buying the neighborhood. Get to know the surrounding area before you submit an offer and fully commit to the purchase. Perhaps consider renting before buying in a specific area.
When You’ve Found “The One”
HOME INSPECTION: Home inspections provide you with some protection. The inspector will be able to find problems that you can’t and you’ll want to know these problems before you sign on. Plus, if the home inspection reveals serious defects that the seller did not disclose, you’ll generally be able to rescind your offer and get your deposit back. Make sure to walk through the home with the inspector and ask lots of questions. Do another walk through without the inspector and look at things more slowly. If the house needs some TLC make sure to put these in the contract as contingency clauses.
BEWARE OF BLINDERS…BUT DON’T LACK VISION: When you’ve fallen in love with a house, it’s easy to overlook things that may not be quite right. That’s why it’s important to bring a family friend or relative along. Since they aren’t buying the property themselves, they’re more likely to see it for what it is. But, on the flip side, don’t let little things scare you away. Some problems can be fixed, or at least endured until you are able to fix them. By being too nitpicky you may miss out on the chance to live in a great neighborhood well situated for you.
SHOP AROUND: Look at more than one mortgage broker and more than one insurance agency. It’s surprising how much rates and costs can fluctuate so do your due diligence and check out more than one agency.
Good luck to those first-time home buyers out there. This is a very exciting time but make sure to be prepared going into the process.
