My husband and I bought our first house in 2013. A few years later, we are selling and about to move and to be honest, we’re not entirely sure where yet! One thing we know is that we are not rushing it this time, which brings me to the topic of discussion, tips on buying a home whether you’re a first timer, or not. Learn from my family’s experience as buyers and sellers. See also this interesting video with great tips:
1. Order your credit report (you’re entitled to one free credit report through all 3 major bureaus from Annualcreditreport.com). I recommend ordering your score as well. Check for any mistakes and dispute any discrepancies such as account information, addresses, payment amounts, etc. This will not only help you see where you stand with your credit but it will prevent any surprises later when the bank runs your credit.
2. Figure out all your expenses, see what you can pay down and what you can afford for a monthly payment. Use a mortgage calculator and do a slight overestimation on taxes and insurance.
When you figure the approximate payment amount, calculate it against your monthly gross income. If it is under 45%, you’re in good shape. If it’s over, you might need to lower your price range to qualify for the loan and make sure you’re not house poor. Don’t forget to calculate utilities (gas/water/electric and HOA fees) into your calculations.
3. Get preapproved for a mortgage. I’ll say it again, get preAPPROVED. I don’t mean go online to quicken loans or have a casual conversation with a lender based on arbitrary numbers. You’ll really just be wasting your time if you do that. Actually get your documents together (1 month of pay stubs, last two years tax returns, w-2s), THEN go talk to a lender! There’s nothing worse than getting “pre-qualified” and finding out you don’t actually qualify for anything.
Even worse when you’ve already fallen in love with a house or you’ve put in an offer/are in the contract! Make sure they give you an estimate of closing costs as well and that you have enough money for a downpayment AND closing costs. Work with the lender to determine what kind of loan will best suit you. FHA, conventional, 203k, etc. See if your lender knows of any first-time home buyers programs in your area.
4. If one lender says no, or if you think the rate offered is too high, shop around. Not all lenders are created equal. Just be mindful of how many times your credit is run because it will lower your score. We’re going to get our 2018 score now. I’m actually glad the holiday season is over, though I’ll miss the things like all those nice cookies…
5. Don’t open up any credit card accounts, finance purchases, take out a loan or buy/lease a vehicle during the process between preapproval and closing on a house. If you do, you run the risk of no longer qualifying for a mortgage because it will throw the ratios off. The only exception may be if you are turning in a car with a higher payment for a lower one but even so, talk to your lender first.
6. Figure out what is most important to you in a home. Are there any non-negotiables? Do you absolutely need that extra bedroom or bathroom? Things like wood floors and granite countertops shouldn’t be a priority unless you are absolutely against a future renovation.
If a house doesn’t have the exact finishes you want, it’s not the end of the world. Things like paint, flooring, cabinets, and countertops can be changed. One thing is sure: our new home must give us some outdoor space so we can breathe better than in a typical urban setting.
7. Figure out if the location is somewhere you can live forever, even if you don’t plan on it. Sometimes homes sell themselves. Perhaps a house has great curb appeal or the perfect layout but just because we fall in love with the house itself doesn’t mean the location is ideal. How long will your commute to work be?
Can you do that same commute day in and day out for years to come? Would you live on a busy road? Maybe now you would since the price is so enticing but will you still love that house if say, you decide to have kids? These are all questions to ask yourself before you start looking.
8. Prepare yourself for the houses you are going to see when you start looking. If the house is an old colonial from the late 1800′s early 1900′s, it might need work. I can’t tell you how many homes on Long Island were built in the early 1900s!
Then there’s a ton from the 1940s when there was a need for housing post-WWII (hello, Levittown!) Those houses were made quickly, and many of them need work. Unless you are paying top dollar for a completely remodeled and renovated home, be prepared to see houses that will eventually need work to update them. Well, let’s see if this all is fiction or really non-fiction.
9. Start looking at houses! Working with a buyer’s agent has its perks but I don’t personally recommend signing an agreement with a buyer’s agent until you’re comfortable with him/her enough and know they have your best interests in mind. It is also important to know they work in a timely fashion and alert you to newly listed houses quickly.
You should not be chasing your agent asking them about houses that come onto the market. They should be telling YOU! The best way to find a buyer’s agent is through word of mouth and personal recommendation. If a realtor pushes for you to sign an agreement right away, move on to the next one. If you’re not sure, find a person you trust for some coaching.
10. Once you find a house you love, research where the market is headed in the area. Use sites like zillow.com to search for Recently Sold homes (goes back about 2 years) and see if homes show a trend of increasing in price or decreasing in price.
Don’t count homes currently for sale in your comparison, only those that sold (including short sales and foreclosures). Figure out the appropriate market value for the home you’re interested in and put in an offer up to 8% less. It should leave room for negotiations without offending the seller.
11. Take the above information, and decide if the market is still declining, is your new home going to be somewhere you will live for the long term? As in 15+ years? I ask this because if you think you’ll be in your “starter home” for only 5 years and the market is still declining, you might take a loss when you go to sell, especially if you put money into improvements. If the market where you’re looking is on the rise (usually a seller’s market), you will probably be in better shape if you don’t plan on living there forever.
12. Don’t skimp on a home inspector. You get what you pay for. Call around and get quotes from at least 5 inspectors. I wouldn’t necessarily go with the lowest price. Like lenders, not all inspectors are created equal. You want someone who is going to be meticulous. Someone who’s going to see past any cover-ups and tell you every detail you need to know before proceeding with your purchase.
He will see things you may have missed during showings. Just don’t be surprised if you go with the cheap inspector and start finding things wrong with the house that never made it to your inspection report after you go to closing and move in. That’s never fun and it can be very costly!
13. Don’t let your excitement cloud your judgment. Is the house priced out of your true comfortable price range? How is your timeline, are you in a rush to buy? Sometimes we get ahead of ourselves and we make rush decisions.
In a seller’s market, realtors can’t stress enough that you need to decide quickly, sometimes even within hours of seeing a house. But I can’t tell you enough that you need to consider all the above things before you get into contract on a house! Do your due diligence and research everything you can so that there are no surprises.
Familiarize yourself with terms such as short sale, REO/foreclosure, ARM, fixed rate mortgage, points, PITI, PMI, contingencies, appraisal, closing costs, earnest money, escrow, equity, LTV, etc. Knowledge is key in real estate transactions and will only help you in the long run!