For many people, a home is the largest investment they’ll ever make. Unfortunately, not everyone is well versed in the procedure for purchasing a home. They often enter the process unprepared or pay too much for the property.
If you’re new to the home buying process, arm yourself with these dos and don’ts for purchasing your first home.
Do: Know What You Can Afford
It’s easy to begin looking into potential homes without first looking at your budget. You might fall in love with a home that you can’t afford and be unhappy shopping for anything less. It’s better to first determine what you can afford and shop within that range to ensure satisfaction with your final purchase.
Additionally, the bank may say you can afford a $400,000 home, but your monthly expenses disagree. The bank got this number by looking at things like your credit history and existing credit and loan debt. They may not consider all of your monthly expenses.
Add up things like health insurance, groceries, vehicle maintenance costs, retirement savings plans, extra amenities, and so on. Then, factor in your house payment and make sure it’s a number you can actually afford. You may want to bring the bank’s number down to fit within your financial parameters.
Don’t: Forget Extra Costs
One thing many first-time homebuyers don’t realize is that the price of the home is not the only cost associated with the purchase. There are closing fees, inspection and appraisal costs, realtor dues, loan-associated fees, and more. This will tack a few thousand dollars onto the price of the home.
Once you move in, there will also be added expenses. You’ll have property insurance, taxes, maintenance, utility bills, repairs, renovations, landscaping, and other costs associated with owning and maintaining a home. Reserve some savings just in case unexpected expenses arise.
Do: Canvas the Neighborhood
You’ve probably heard that location is what sells real estate, but do you really know what that means? When looking at a house, don’t get so caught up in the recent renovations and lush landscaping that you forget to check out the surroundings. The house might have everything you need, but if it’s in a neighborhood that doesn’t work for your situation, you’ll likely be unhappy with your purchase.
Though you can do some online research to locate schools and amenities in the area, the best way to get to know a neighborhood is to spend some time there. Visit local restaurants, take a tour of the school with your children, talk to the neighbors, read crime reports, note the prosperity of local businesses—each of these things will give you an idea of where you’ll be living.
If you don’t like what you find, move on. There will be other options in better neighborhoods.
Don’t: Be Too Picky
A lot of first-time homebuyers have spent their days dreaming of certain features in their home, oftentimes inspired by things like HGTV and Pinterest. It’s great to dream big, but be flexibile with your list of must-haves. You may not find a home in your price range that has everything on your wish list, and you’ll have a much better experience if you lower your expectations.
Start by making a list of your needs and wants. Be willing to let go of certain extras if you can’t find them in your price range. You can always make renovations later on.
Additionally, think outside the box. You might walk into a home with terrible wallpaper in the living room and carpet in the kitchen. But remember that these are cosmetic things that you can easily and affordably change. Instead, envision the home for what it could be with a little work.
Do: Get a Good Mortgage
Did you know there are many ways to get a mortgage? Smart homebuyers don’t just visit the bank and take the first loan they’re offered. They shop around, considering the different mortgage options and lenders available. Sometimes this means approaching an unconventional lender or even the government to get the loan you seek.
No matter where you get your loan, here are some of the options you’ll find:
- Fixed Rate: The interest rate remains the same for the life of the loan, regardless of the way interest rates change. If you’re planning on staying in your home for more than 10 years, a fixed rate mortgage is best.
- Adjustable Rate: If you’re planning on staying in a home for just a few years, you might consider the adjustable rate mortgage, meaning your interest rate will change depending on current rates. This means it will go up and down at random times, and if you’re only paying your mortgage for a short time, you could potentially pay less interest.
- Interest Only: This option is for those who need a house, but can’t afford to make payments on their mortgage for a few years. You’ll pay only the interest accrued on the house rather than payments towards the balance. It’s not the best option if you want to pay less over time, but it’s a good way to get started if you know you’ll make significantly more money in the future. It’s common for people in law school or medical school, who know they’ll make much more in the future.
- FHA Loans: Federal Housing Administration (FHA) loans are very popular among first-time homebuyers because they don’t require a large down payment. The government makes it fairly easy to be approved for a loan for those who need a little extra assistance, but it comes with a much higher interest rate.
If you want to pay significantly less in the long run, keep your interest rate low. If you have good credit (700 or above), you’re already in line for a good interest rate. If not, consider spending a few years improving your credit before investing in a home.
You can also get a good rate by building a larger down payment. Though some lenders will give you a mortgage with as little as 5 percent down, you’ll have a much better interest rate if you make a down payment of 20 percent or more.
Learn More About The Home Buying Process
Like what you read and want to learn more? You’ll find plenty of articles about the home buying process on our site. We also offer services to help you find your dream home.
For more information, contact us today!