Buying a home is one of the most important decisions you will make in life and many advertisements make it look easy. However, diving right in without doing the necessary research can lead to a lifetime of a headaches and a mountain of hidden costs. Therefore, it’s in your best interests to thoroughly investigate implications before contractually committing to a buying house. Here are some of the most important tips to help you during the home buying process
Start Saving Early
While you don’t need to pay everything for your home upfront, you will likely need to made a sizable down payment, plus you’ll want a bit of cushion to make sure that you can make your first few payments without any big issues. The best and easiest way to go about that is to take a few cost-cutting measures in the months leading up to your acquisition of a new home.
If you feel secure enough in just stashing away a bit of money from every paycheck, then you may not need to take more drastic measures, but if you do, then consider trading in for a cheaper and more efficient car, taking extra hours at your job, or even getting a second job. If you have built up some retirement savings over the years, then you may want to tap into those, but be careful about early withdrawal penalties because those can mount up very quickly.
Understand Down Payments
When shopping around for homes, one of the biggest selling points that you will see is the size of the down payment. Some sellers will try to entice you with low down payments, while others might advertise a low interest rate instead. Some will advertise both, some will advertise neither, but the key is to understand what exactly a low down payment means.
In most cases, the size of the down payment will scale with the size of the house. 5% of the total cost of the house is common, meaning you would need to pay $5,000 upfront for a $100,000 house. The remaining $95,000 will then be paid back over however long your mortgage is, with interest resulting in you paying more than $95,000 overall.
Familiarize Yourself With the Finer Points of Mortgages
Even though the down payment is the first and biggest obstacle in your path, the mortgage behind it is even more important. There are a number of factors that are considered when it comes to who gets what rates, including affordability, credit checks, and pre-qualification letters.
- Whether or not you can actually afford a mortgage is obviously going to be one of the biggest determinants in what options you are given. You will need to be able to prove that you have the means the make the necessary payments, so ensure that you have proof of income.
- Your credit will also be checked, so if it doesn’t look good enough, then you may need to wait a while and let your score stabilize before proceeding. If that’s not possible, you may need to settle for a larger down payment, which may be able to make up the difference and let the lender trust you.
- Prequalification letters essentially act as proof of how much a lender is willing to give you. Having this in hand before you seriously begin to talk to individual sellers will give you a more accurate idea of exactly what you can afford. Such letters may be a wake up call that you can’t afford your first choice, but they can also reveal opportunities that you didn’t know you had.
Keep Your Credit In Check
Your credit rating is one of the areas that you will need to start looking at months before you even begin to shop for a house. You’ll want to keep your credit card debt to an absolute minimum, plus you want to make sure that you don’t have too many cards in your name. They can be tempting, especially if you’re trying to cut costs and save up money for your down payment, but the hit to your credit rating can potentially result in you being locked out of certain favorable mortgages.
Look Into State and Local Assistance Programs
One of the most underutilized tools available to potential homeowners is government assistance. There are a wide variety of programs at the federal, state, and local levels that can help reduce the strain on your bank account. For example, the HOPE program can help low-income families transition from public housing to home ownership.
The key lies in finding the right type of program for your situation. Some programs can help modify your loans, getting you more favorable terms or accommodating changes in your income. Other programs can help you refinance even when you owe more than your home’s value. Although you may not need these immediately, it’s critical that you familiarize yourself with them so that you know what options you have if conditions take a turn for the worse later
Get a Property Survey
Once you’ve narrowed down your potential choices, you want to make sure that a property survey was conducted. This is an often overlooked detail, but a property survey can save you an unimaginable amount of headache down the road, especially if it reveals that the borders of the property aren’t exactly where you thought. Even if they are exactly where the seller tells you, then having the physical evidence of a survey can be extremely helpful if a dispute with neighbors arises down the road.
Learn How to Pick an Ideal Agent
When hunting for real estate agents, there are a number of characteristics that you want to focus on. Firstly, you want to make sure that you find an agent that is motivated to get you the best deal possible. If they seem disinterested or act like your needs are a low priority, then can you trust them to get you the best deal possible?
You also want to make sure that you are getting an agent with extensive local knowledge, not an agent from a big regional office that only has general knowledge about the area you’re looking in. The better they know the specifics of the neighborhood, the better equipped they will be to strike a balance between your wants and your wallet.
Make Sure You Get the Right Kind of Home
When shopping for a house, it’s easy to ignore alternate possibilities or gloss over important details. For example, do you really need a house or would a condo fit your needs just as well? One is generally much cheaper than the other, so if you don’t need the specific benefits of a house, then it might be time to reconsider.
When you do shop for a home, it would behoove you to keep track of whether each home is HOA. Restrictions and rules may vary from HOA to HOA, meaning that two otherwise similar homes might place very different constraints on your lifestyle. Some of those restrictions can be very minor, but some, such as rules about pets and what you can have on your lawn, can matter quite a bit.
Take Advantage of Open Houses
Open houses are an incredible opportunity that not enough buyers take advantage of. Even if you aren’t interested in a specific house being shown, a look around the inside can give you a pretty good idea of what the surrounding houses look like, especially if it’s a recent housing development.
Open houses are particularly useful for buyers that are looking for a low-pressure environment in which to browse. Taking a personalized tour with an agent can be a harrowing experience that you feel might push you into decisions you don’t want to make, but an open house removes all of that pressure.
Evaluate Your Needs
When picking out a home, make sure that you are properly evaluating your needs and exactly what you want to get out of the experience. Are you looking for a long-term investment that will be your home for decades? Are you just looking for a place to sleep temporarily?
It’s easy to get caught up in the process and treat it as an investment for the future, but if that’s not actually the case, then you may make a decision you regret. It can be helpful to map out the length of the mortgage repayment and compare that to your plans for your personal life, not only in how that stacks up to the mortgage, but also in where you will see yourself at the halfway point in the mortgage as well.
Keep Track of Additional Costs
It’s easy to look at the big price tag of the down payment and see that as the whole bill, but there are plenty of other costs that you need to keep in mind as well. If you progress carelessly, then you may end up with a big bundle of hidden costs and fees that make the down payment and interest rate suddenly feel deceptive.
In particular, pay attention to closing fees. If you thought this would be a low number, think again because closing fees commonly rise as high as 5%. Depending on your mortgage, that could be as much as the down payment itself, effectively resulting in a doubling of upfront fees. On top of that, you also have to consider the expenses of moving and moving in, along with any furnishings you may need to acquire. All in all, if you’re only prepared to pay for the down payment, then you may end up way over your head in debt.
Negotiate Based on State and Maintenance
When it comes to negotiating over the value of a home, it’s a good idea to focus on the general state of the house and what repairs might be necessary. Using specific points as leverage, you may be able to drive the price down quite a bit. After all, the seller may want to get rid of the home quickly and either isn’t willing to get the repairs done themselves or isn’t willing to pay someone else for them. On the other hand, if you are willing to do those repairs yourself or have a contact that can get them done cheaply, then you can negotiate the price down and then do the repairs yourself for little to no cost.
Understand the Purpose and Limitations of Inspections
Home inspections are useful, but it’s just as important to understand what they can’t do as what they can. When you order a home inspection, you’re getting a list of checked boxes. Does the foundation have visible damage? Is the roof in good condition? Is the exterior in need of repainting and does it contain asbestos?
These questions can help you get a rough idea of whether the house is safe or in need of immediate repairs, but they don’t necessarily reflect the quality or value of the house. Furthermore, inspections aren’t infallible. Inspectors may miss things in some cases or a problem may not be obvious on that day for some reason.
If you’re the one ordering an inspection (as opposed to the seller), then you can use that inspection to negotiate repairs with the homeowner. They will need to perform those repairs in order to sell the house to you.