Owning a home is a dream shared by many. Some think, however, that they would never be able to afford it.
There are those who believe that they would never qualify for a mortgage while still others think that the process is too complicated.
These should not stop you from striving to have your own property, though.
By acquiring knowledge on how to buy real estate, you’d be able to prepare yourself and inch closer to purchasing your first home.
Why You Should You Invest in Real Estate
Real estate is a huge investment. It is a wise one, too. Having a property to your name not only provides a feeling of safety and security – it is your own, after all, and there is no landlord who can evict you anytime – it is also usually good value since the price normally goes up as years pass by.
It can also be used to earn if you eventually decide to rent it out, it is in your control unlike stock market.
Before Buying Your First House
One thing that you should expect when buying your home is, there are many challenges to face, the foremost of which is to not buy the first house that you see.
It can be tempting to rush in once you have enough savings for the down payment, but you don’t want to regret your choice later on.
After all, you’d be dishing out a lot of your hard-earned money for it. If you take your time, you are more likely to end up with a really nice piece of property that you’d be glad to call your home for years.
Here are some important questions that you should ask and answer before making that important commitment:
What Kind of Home Do You Need and Want?
The first thing you need to decide is what type of home to buy. Your lifestyle, habits, preferences, and level of comfort should be part of the decision process.
Do you want a lawn so you can do your own gardening?
Do you want 24-hour security and the confidence that your neighbors are literally just on the other side of your walls?
Would you rather pay for maintenance than shovel the snow outside yourself?
Or are you a do-it-yourself person who wants space to build things with your tools?
There also other factors to put into consideration, such as the size of the family you have or plan to have (how many bedrooms and bathrooms you would need), if stairs are okay or if you’d rather not have one, if you need a home office or library, if you like to tinker with your car, and so on.
There are many different types of homes that you can choose from, from bungalows to faux chateaus, from duplexes to townhouses, from historic houses to state-of-the-art building units. There are three general types, though, and these are detached houses, townhouses, and condominiums.
· A condominium unit is like apartment buildings in which you share many common areas with your neighbors, like the lobby, hallway, elevator and staircase, parking lots, and others. It generally provides better security than a house in a neighborhood, especially if you live alone or if no one stays at home most of the time.
One thing that you should consider when buying a condo is, apart from paying for the mortgage, there are also the monthly fees for the upkeep of the building.
In exchange for the payment are creature comforts like the convenience of having a maintenance crew to handle the cleaning in the common areas.
Depending on what the condo offers, the fees may or may not include heating, water, garbage collection, etc.
There are also numerous rules to follow, so you won’t have as much freedom as you would if you buy a house. On the bright side, your neighbors also have to follow the same rules.
For example, if the condo does not allow pets, then you can’t keep a dog, cat, bird, hamster, or snake, but neither can your neighbors. If the homeowners association does not allow garish holiday décor, then none of the residents will be able to put them up.
Condos come in different sizes, from studio type units to multi-bedroom ones. There are also loft-type designs, those that have terraces, and so on. However, like apartments, expect to have limited space, no lawn, and you usually have to buy a parking space separately.
· A single detached house, on the other hand, is usually more expensive than a condominium unit (depending on the location), but it gives you more freedom, like how you want to decorate your front yard (some subdivisions, however, have stringent homeowner rules).
You also have more privacy since you are not sharing walls with your neighbors. While you do not have to dish out cash monthly for building maintenance fees, you do have to handle maintenance yourself – you’d be the one to call the plumber or electrician and pay for their services, you’d have to have your own roof repaired, and you have to install your own security devices.
· Somewhere between the two is a townhouse. This is composed if a row of residential units with two or more levels. While you share your wall or walls with your neighbors, you usually have some space in front for your vehicle. This offers more privacy than a condo but less than a detached house.
Where Do You Want to Live?
The next step is to decide the location – which area or neighborhood you want to live in. Do you want to be in the city where you’re closer to malls and other commercial areas or do you prefer to have a more rural lifestyle with a bigger land and more peace and quiet?
Do you want to be in a gated community where entrance is limited or would you rather be in a place where there are less restrictions?
Do you want to be only a short way from work or your kids’ school or do you not mind driving the distance?
As many people will say, location is one of the important factors in choosing a property.
A booming district usually means the potential for an increase in real estate value. A run-down neighborhood is unlikely to fetch high prices if you eventually decide to sell or even if you intend to put it on lease later on.
Still, regardless of whether you want to live downtown or you like rural or suburban living, you need to consider the following when making your decision:
· Accessibility and Safety
You need to check the accessibility of the house to your work place and the school district as well as its proximity to a hospital, grocery, and so on.
If, for instance, your car breaks down, would you be able to commute to the office?
If there’s fire or a medical emergency, will the fire trucks or ambulance be able to get to your place without trouble?
You should be aware of the community’s safety, too – how often do crimes happen, has the house or neighborhood been burglarized, are there issues of street fights, and so on.
Of course, price differs depending on the location, with those farther from the city usually costing less and those in high-end communities costing more.
To give you an idea of how much your preferred house type costs, you need to know the state, the city, and the zip code. You can then search online to get a general figure on the prices.
The median price in Dallas is $189 per square foot, it’s $122 per square foot in the Dallas-Fort Worth Metro, it’s $214 per square foot in Washington Metro, while in Arlington, it’s $442 per square foot.
For condos, the average sale price in Manhattan in the second quarter of 2015 was $1,340 per square foot, according to NY Curb (it increased to $1,759 per square foot in the second quarter of 2016).
On the other hand, the price of a condo in Downtown Austin in spring of 2015 was around $500 per square foot, with luxury towers charging more than $1,200 per square foot, reported Downtown Austin Blog.
Prices can also vary within the same neighborhood and even in the same building. For instance, the end unit of a townhouse is usually more pricey than a middle unit.
In short, the cost of a house is not only determined by the size, materials, and build of the structure, it is also greatly influenced by where it is located.
Moreover, your decision in which house to buy should include the type of neighborhood it is in: choose one that you are most comfortable in and is suited for the lifestyle you have or plan to have.
For example, if you do not like noise, would you be okay in a house along a busy street or beside a neighbor who throws parties every weekend?
If residents in the community are mostly members of a country club, would you be okay not joining?
If they drive Porches and Mercedes-Benzes, would still be fine driving your beloved Beetle? After all, you wouldn’t want to be subconsciously pressured by your neighbors’ lifestyle.
How Much Can You Afford?
Determining the kind of house and where you want to live is only the tip of the iceberg. Before you start shopping for a home, you need to sit down and compute how much you will be able to truly afford.
This is important because: one, you wouldn’t want to waste your time and effort checking out houses that are way beyond your budget; and two, you need to stay within the amount you’d be comfortable paying.
If you go beyond, you might end up either borrowing money to meet your needs or missing payments, which would result in penalties or even foreclosure.
Finding out how much you can afford is not just about the down payment; it is also about the other expenses that will come along, including the mortgage that you will have to pay monthly for many years.
Aside from that, there will also be taxes, insurance, homeowners association fees (if applicable), and so on. You may also have to initially face other expenses, like changing the locks or having the old tree in the yard trimmed.
Remember that while some of your current expenses will go away like your renters insurance, many others will continue, like your utility bills, household allowance, transportation expenses, credit card bills, and car loan and student loan payments.
Others will be added, too, such as the occasional repairs costs, lawn maintenance, among others.
To find out how much you can pay for, determine:
· Your Take-Home Pay
You should know not just your gross salary but also how much money your household actually brings home per month.
This is the amount after all the deductions, like federal and state taxes, your Social Security and Medicare, as well as your contributions to your 401(k), your individual retirement fund, and your Health Savings Account.
Although the latter items are investments, do not include them when computing how much money you can work with.
· Your Current Expenses
Make a list of where your take-home pay goes: there are necessary expenses like your utility bills, insurance, loan payments, rent, groceries, etc.; there are also optional expenses like fashionable clothes and restaurant food. If you are not yet doing so, then start making a budget.
· Your Potential Expenses
From here, you can try to imagine how your expenses will change after you buy a house. When you become a homeowner, you will no longer pay rent but you will be paying mortgage.
You will no longer need a renters insurance but you will need a homeowners insurance.
You will be paying for property taxes, too, and depending on what type of home you intend to buy, you may have to pay a monthly homeowners’ association fee.
You should also consider the distance to your workplace – if it’s farther, then your transportation expenses may increase. If you buy a place with a bigger space, your electricity bill might go up; and if want one with a lawn, expect to spend more on water.
Do not forget to include what you set aside for your savings and your emergency fund when you make your computation.
Deduct your potential expenses from your take-home pay and you can determine how much you’d be able to afford each month for mortgage payments.
By getting a ballpark figure, you will have room to make certain adjustments on your plans and focus on searching for homes within your means.
For example, you might become more open to looking for a house in the suburbs rather in than in the heart of the city.
How Much Loan Can You Get?
At this point, it would be wise to differentiate being pre-qualified and being pre-approved for a loan.
· Pre-qualification is merely getting an assessment of how much your might be qualified to borrow based on a broad picture of your assets, income, and debts. Since this does not include a thorough analysis of your ability to buy real estate or of your credit report, there is no guarantee that the amount that you are quoted would be the amount you can actually loan.
Still, this is an important step that you should take. It’s usually free and can be done online or through a phone call, and you can take the opportunity to ask for recommendations from your lender on what loan type might be suited for your goals and financial situation. You can also get a pre-qualification from several lenders so you can choose which one to work with later on.
· Pre-approval carries more weight. You will be required to submit documents, fill out an application form, and pay a fee. Because the assessment will be based on more thorough financial checks and your credit rating, you will get a specific amount that you can get approved for.
Usually, the information you would need to provide include your Social Security number, your employment information, your income, and your net worth.
You might also have to supply an estimate of a homeowners insurance you intend to have, the down payment you will be dishing out, and also the zip code of the property you intend to buy, although this isn’t vital at this point.
You should also prepare pertinent documents, such as: a copy of your Social Security card and driver’s license; your pay stub/s for the last month; your W-2 Forms for the past two years; statements of your accounts in the last two years, including your savings account, checking account, retirement account, and brokerage account; and your 1099s for the last two year.
You would need to provide a profit-and-loss statement if you are self-employed.
Getting pre-approved will not only allow you save time and effort when shopping for a house since you already know what you will be able to afford, it will also let you move quickly once you find the right one.
Going House Hunting
From here, you can start with the process of the shopping for a house. Here are the steps you need to take:
Find a Real Estate Agent
While you have the option to buy a house directly from the owner, it would be wise to get a real estate agent.
This is because an agent has the fiduciary responsibility of looking out for you and your interests first.
This means that they are expected to tell you the truth, let you know of any defects or issues that they observe, and provide you with documentations that you are entitled to have, like seller disclosures.
They also foresee issues and try to solve them. And because they would be doing the negotiations on your behalf, they are expected to try to get the best terms and price for you.
Here are several other reasons why getting a real estate agent is good idea, especially if you are a first-time homebuyer:
Real estate agents know the ins-and-outs of the business and they generally have good access to many listings of properties for sale.
They will do the scouting for you and get in touch with other agents who represent sellers.
For example, if you are looking for a three-bedroom, two-bathroom house with a lawn and garage in a particular area, your agent can contact other agents who have this type of house on the market. This way, you don’t have to do the search yourself.
Real estate agents are professionals and they are familiar with the documents and contracts regarding the purchase or sale of property.
They can protect you from conditions that could otherwise be cause for problems.
For example, if you deal with seller directly and you are not able to meet a condition in the purchase, you could end up in hot water, even losing your deposit.
If you have a real estate agent, they can review the document and propose changes for your protection.
Since real estate agents have to follow the professional ethics in the field and they often rely on referrals for more business, they normally try to act in the best interest of their clients.
This means that your agent (provided he or she is one who is not concerned only about making a sale and getting a commission) will try to do their best to get the best deal for you.
Also, it would be to your advantage to have a middle man to do the negotiations for you.
Real estate agents are usually very amiable people who can smoothen out comments that could otherwise be cause for bad blood between you and the seller.
You don’t want to lose the opportunity to purchase your dream house simply because the owner doesn’t like what you said about the wall paint.
Many people think that having a real estate agent would be more costly. While it’s true that they get commissions for a sale, the amount is often taken from the seller, not the buyer.
Many people who are new to real estate interchange the titles of a real estate agent, a realtor, and a broker.
Just to clarify, a real estate agent is a person who has taken courses and has passed the real estate licensing exam. They cannot work independently; instead, they work under a licensed broker.
A real estate broker, on the other hand, is an agent who continued to study and passed the real estate broker licensing exam.
A broker can work as an independent agent and even hire other agents.
A realtor, meanwhile, is a real estate agent who joins the National Association of Realtors and agrees to follow the organization’s code of ethics.
Regardless of which one you decide to hire to represent you, you should check their background and experience, if they are working full time or part time, what contract they would ask you to sign, and so on.
While real estate agents need clients like you, you also need them.
Therefore, they should not only impress you, you should impress them in turn, such as having some of the required documents ready and being friendly.
This way, they would be happy to work with you and be on your side not only out of duty but also with pleasure.
Work With Your Real Estate Agent
Once you find a real estate agent to represent you, discuss with them what kind of house you want and what things you don’t particularly like.
For example, you may want an attic but no basement. Narrowing things down would save you time.
You can also do your own search over the Internet and tell your agent if a property interests you. This way, you can get more information about it.
By treating your agent as your ally and not your foe, you may be able to find out more about the properties you’re considering, like why the sellers are selling, how long a particular house has been on the market, why it’s been there for so long, and so on.
Go on Site Visits
You would need your agent to accompany you when you look at houses.
For occupied ones, an appointment would be necessary – no family would want people coming to look at their bedrooms and bathrooms without warning; and for unoccupied ones, your agent would need to be able to open the doors.
Site visits are better on a weekday because weekends are usually busy and your agent might have to accommodate more clients.
It would also be better to visit several houses in a day rather than looking at only one house at a time.
If you do the latter, by the time you finish seven or ten houses, the second one that you saw and like might already have been sold.
Once you go on a site visit, observe the neighborhood as you drive down the road.
For a detached house, see if the lawn is big enough for you – big enough for swings for your kids or a pool, if you intend to have one.
Determine how much work is needed for the landscaping and fencing. How far away is the next door neighbor? Check the condition of the exterior walls, the roof, and the walkway.
When you step inside, don’t just admire the layout or how pretty the carpet is; look at the condition of the ceiling and walls (see if there are water marks), the floors, the kitchen counters, the bathroom, and so on.
Are there molds, are the tiles stained and chipped in many places, is the bannister on the stairs loose?
Prick up your ears for the sounds of scraping in the attic (mice or termites?), use your nose for any musty smell, use your skin to feel any dampness.
You should also make a phone call. Just any phone call will do – it is just to see if there a signal in the house; if there’s none, then it could a signal black spot.
Take note of these issues (and there may be more that only a home inspection would reveal) and estimate how much you’d have to pay for repairs. These may be worked out in the price unless the seller is willing to have them fixed.
Do Your Research
Apart from site visits, you can also do the following to help you decide:
· Return to the neighborhood. Observe how life is during the night or during weekends. You may find that the next door neighbor likes to turn up the volume at the time when your kids should be doing their homework.
· Go to the town hall to find out if there are plans (approved, pending, or rejected) for construction in that particular zip code. A planned railroad track might not be what you have in mind when thinking of a quiet home to live in, or maybe a planned school nearby is just what you want.
· Look at the town’s history of hazards. You wouldn’t want to buy a house that looks lovely in summer but turns into a swamp during the rainy season, or a place where you’d be afraid for your kids to step out.
· Note what companies are doing in the area. A good indicator that a neighborhood is on the upswing is usually when companies are eyeing it – there are developments, chain stores are setting up shop, and so on.
Things to Remember When Choosing a House
While real estate is an investment that costs a lot, think of your first house as home – one that, in the future, would be priceless for you and your family. Here are some simple tips to remember when choosing a house:
Unlike renting an apartment, which is more of a temporary housing, owning your own home leans toward permanence.
While you might decide to rent it out or sell it later on, it is still a property in your name, something that you will work hard to fully pay for in the next few years or even decades.
It is a place where your kids will grow up and establish their roots and memories, where you will perhaps grow old in. It will be your place of safety and security – your refuge.
Also, buying a home requires a lot of money, time, and effort. There are a lot of documents to read and sign, and other matters to consider.
Therefore, when you’re choosing a house, think permanent. If that is hard to imagine, then at least think that it will be your home for the next 5 or 10 years.
Give room for growth
Your life will not remain as it is. Expect changes – planned or unexpected – such as a baby or your parents moving in instead of living in a retirement community.
You might decide to work at home or start a small business.
You may decide to start growing your own herbs or turn your garage into a studio where you can paint on large canvasses. Whatever the case, your home should be able to adapt as you change and grow.
When looking for a home, try to include your plans and dreams and find out what your passions are. You might not be able to do them now but eventually, when you have more time and your own space, you might.
Allow for flexibility
When checking a house, imagine how flexible it is – that is, can a room serve a different function or can you easily expand it if needed?
While renovation may be far from your mind when you’re looking for a house to buy, it would be wise to think of such things because the house’s flexibility in terms on design would make it easier for you to change the layout when you decide to do so.
Sometimes, we make choices based on biases. Don’t let this happen when you’re house hunting. For example, old does not mean run-down.
A house built in the ‘70s that has been taken cared of by the previous owner/s might be a better choice than one build five years ago but was sorely neglected.
Don’t let your feelings control you, either. While buying a house can be an emotional process, it is also an expensive one. You have to be wise and not get carried away by how you feel.
For instance, you may fall in love with a house but if it’s beyond your means, you should let it go; or you may feel sentimental because the house is in your childhood neighborhood, but if it’s almost run-down, then you may have headache for years rather than peace of mind.
Of course, as you look at different houses, you might have a change of heart.
For example, you might have initially been aiming for a townhouse but, realizing that the space would be too small for your family or that you’d rather have more privacy, you may want to have a detached house instead.
How to Tell if You’ve Found the Right House
In many cases, homebuyers just “know” when they’ve found the right house. While this may differ from person to person, there are some signals that tell you when it’s the one you really want. Here are some tell-tale signs:
· You are drawn in. Even while you are still outside, you look forward to seeing the interior of the house. It is not just about going through the motions; it is more of really wanting to see what’s inside.
· You feel comfortable once you step in. When you enter the door, you don’t feel out of place or like you’re trespassing. You feel comfortable in it. Also, you don’t feel repulsion when go near the bathroom.
· You envision yourself living in it. You may see your curtains hanging on the windows or the walls painted in your favorite color. You might also start thinking about how you’d decorate the rooms and where you’re going to put this and that furniture.
· You deem that it suits your needs. You find that the house has what you need and would serve your lifestyle – perhaps it has just the right sized kitchen where you can do your magic as an excellent cook or it has bedrooms suited for you and your kids.
· You don’t want to look at other houses anymore. When you find the right house, you find that you no longer have the desire to look at others. Of course, it is never a good idea to settle for the first or second house that you see. You need to check out other properties, too, but if you keep on wanting to go back to that one house, then it just might be the one you really want.
· You react like it’s yours. You have the inkling to tell your friends about the house and you might even find yourself defending it from criticism. You also have this nagging thought that you should buy it.
One thing to remember is, it’s never advisable to buy any house on impulse. After all, it is not like purchasing a pair of shoes. Give yourself time to think and weigh your options.
Steps in Buying Your First House
When you’ve found a house that you want – one that you can picture yourself living in for many years – it’s time to try to acquire it. Here are the things that you can expect to happen and what you should do:
Make an Offer
Once you’ve found the home you want to buy, you will have to make an offer. Before you do, though, you should:
· Ask your agent for information about the market condition for the neighborhood and type of house you are interested in. You’d want to know the price range for homes with almost the same amenities, rooms, and size like it before you write an offer.
· Determine the maximum amount you’re willing to pay. This way, you won’t go over your ceiling should fierce bidding happens.
· If you really want the house, then you might want to consider offering the full price or even a bit higher in order to have a better chance of getting it, especially if there are other homebuyers who are also making an offer. If, on the other hand, you’d love it only if the price is lower, then you may consider offering less than the full price.
· Decide the closing date and include it in your offer, the standard of which is 30 days.
· Give yourself room to wiggle out. Include your offer conditions like if you are not able to secure financing or if the home inspection reveals many issues that require repairs, then you can cancel your offer. Also, include a time frame for this, such as two weeks, so you do not use up too much of the seller’s time.
· You can also ask for some perks from the seller, especially if the market is rather slow. This could be something like including some appliances in the deal. There is no guarantee that the seller would agree, but you won’t lose anything by asking (unless, of course your request is so outrageous that the seller decides to refuse to sell you the house).
Do not expect your offer to be accepted as it is. The seller is likely to make a counteroffer, such as a price higher than your offer and/or some changes in the terms. You can then make a counteroffer, but make sure that you remain reasonable.
Once a mutually agreeable deal is set, you and the seller will sign a purchase agreement. After this, the more technical aspects of the process kicks in.
Go Through the Documentation Process
At this point, you are getting closer to obtaining the house that you want. This stage involves documentation, appraisal, loan approval, and payments.
After the purchase agreement is signed, the house will be held in escrow. Escrow is when a neutral third party holds, in trust, an asset on the buyer’s and seller’s behalf. The escrow company or agent ensures that each party fulfills their obligations until the transaction is completed.
For instance, by letting the escrow company hold your earnest money, you are showing the seller that you’re serious about purchasing the property while at the same time, you feel secured that the seller is not going to get your money and then deny ever agreeing that you could buy the house.
Apart from money, the escrow company will also be collecting documents that are needed to complete the transaction.
The purchase agreement that you and the seller sign should include the name of the escrow company, and your earnest money plus other documents will be deposited in an escrow account in that company.
While the property and your earnest money are in escrow, the house will be appraised by the bank before they to provide you with mortgage.
It would be good if you get a high appraisal value, but if it’s lower than the agreed price, then either the seller lowers the price or you would need to shoulder the difference.
If neither is possible, then the lender might not approve your application.
Still, you can try to convince them that the property is worth more than the appraised value. If this doesn’t work, then you might want to get another appraisal or try another financial institution. Otherwise, you may need to cancel the deal and look for another property.
Even before you signing the agreement, you should already have acquired a pre-approval for your mortgage.
At this stage, your lender will provide you a good faith statement that shows your loan amount as well as other items like interest rate and closing costs.
Before signing this statement, try to negotiate.
The problems with the property should have already been identified by the seller and you should have a written disclosure.
Still, it would be good idea to spend a few hundred dollars to get a home inspection so that you will be aware of any other problems with the house that could be costly to repair or are even dangerous.
Through this, you will be able to either back out of the deal, ask the seller to lower the price, or have the problems fixed, unless the seller clearly states in the contract that the property is being sold “as is.”
Other inspections that you should consider having are pest inspection and environmental inspection. After all, you wouldn’t want to find out that there are termites or toxins in the house.
You should also get a hazard report, especially if the area experiences plenty of earthquakes or hurricanes.
Don’t forget to get a title report to make sure that the title is clean – that the seller is the owner of the property and there are no others who are laying claim to it and that there are no liens.
A title insurance is likewise important because it would protect both you and your lender in case there are legal challenges later on. Sometimes, even after a title search, some disputes still arise.
As a homeowner, you will need to get a homeowners/hazard insurance and, usually, you will be required by your lender to have this until the mortgage is fully paid.
If the house is located in a disaster-prone area, you might be required to get additional coverage, such as flood insurance.
This is a good idea, anyway, since it provides you with extra security in cases of disaster.
There are other policies you can consider, such as umbrella policies, which provide maximum protection against lawsuits.
A life insurance and disability insurance would be good options, too, because you’d want to provide your family with a means to pay for the rest of the mortgage in case something happens to you.
There are times, however, when insurance companies refuse to insure a home. This happens when, for example, the house was flooded before and the former owner made a large claim. This means that the property is too risky for the company.
· Hud-1 Form
When everything else is in order, the lender will provide you with an HUD-1 form, which is similar to the good faith statement. This is the final document stating your mortgage terms as well as other items like escrow fee, report fee, seller credits toward closing costs (if applicable), and so on.
While it does look similar to the good faith statement, you should still check carefully for errors or any added fees that you are not aware of. You should clarify any item that you think is questionable before you sign.
After this, there will be many documents to sign and payments to be made, and the escrow company will prepare the new deed bearing your name. The escrow will then be closed.
When everything is deemed in order, you will finally get the keys to your new house. Of course, it’s not just a matter of immediately moving in. Here are some other things you need to do before finally settling down:
· Repair any damage. You wouldn’t want to move in, only to get your things wet because of leaky roof or pipe. Also, it would be more difficult to do repairs when your family is already living in the house, so this is the time to get them done.
· Change the locks. You don’t know how many copies of the keys are out there, so to be safe, you should replace the locks in the house.
· Settle things with your landlord. If you’re renting, then you’d have to notify your landlord that you will be leaving. It’s not advisable to do this until you’ve finalized the purchase because so many could go wrong during the negotiations. Your landlord will have to do inspections on the unit you’re renting and, if you leave no damage, you might even get your deposit back.
You also need to pack your stuff, find a mover, change your contact information, and so on. In all these, it’s easy to lose track of your finances, given the many expenses that you’re facing.
Still, make sure that you have enough money set aside to support your family, pay your mortgage, bills, and debts, just in case something happens.
Common Mistakes First-Time Homebuyers Make
Homebuyers, especially those who are purchasing real estate for the first time, can make mistakes that they regret soon after they move in. Here are some of the most common ones:
· Choosing a House They Can’t Afford
It’s always wise to check for houses within your price range because it’s hard to let go of a property once you’ve fallen in love with it. You need to remember that any dream house could turn into a nightmare if you cannot afford it.
Yes, you may have enough saved for the down payment and the lending company might have approved your mortgage, but if your budget says otherwise, then you’d be better off with another house.
Heartbreaking as it may seem, you’d be grateful not buying a house that’s beyond your means.
For one, you don’t have to worry every month about where you’d get the mortgage payments; two, you wouldn’t have to sacrifice other important things like your savings, your retirement funds, or your emergency funds to be able to pay; and three, you’d lessen the risk of foreclosure and having to find another place later on.
Always remember that every dollar on the price has a corresponding interest.
For example, if you find one house that costs $300,000, that will be a total of $518,011.65 in 30 years at 6 percent interest rate. If another house is worth $320,000, the total in the same period and with the same interest rate would be $552,545.76, a difference of almost $35,000, not $20,000.
You can use an online calculator to check the price difference between properties.
· Becoming Impatient
Because house hunting requires time and effort, you may be tempted to give up after looking at several properties. You might also become too impatient and want a house immediately. Try to hold off if you have time because your impulsive decision to buy just any house may cause you more trouble in the long run.
Similarly, if you rush in, you won’t have the opportunity to observe the neighborhood. You might have a neighbor with plenty of cats that they let roam around – this might become a problem with your numerous dogs.
There might be noise issues, like if the house sits on a slope and cars along the road have to rev up when going up the incline.
Keep in mind that the purchase process, repairs, moving in, and eventually trying to sell it are all complicated and costly, so don’t rush in. Save yourself the trouble by waiting until you find the right house.
While rushing in to buy is never a good idea, taking too long is not advisable either, especially if the property is getting many offers. You need to strike a balance between thinking carefully and not taking your sweet time in making your decision.
This is also why you need to prepare yourself beforehand, like getting your loan pre-approved, doing your research regarding the zip code early on, and knowing what you want and need – so that if you do find the right house, you can move quickly.
· Overlooking the Damage
You may be tempted to buy a house because it seems cheaper than others. The thing you have to ask is, why is it cheap? There might be a lot damage or issues that you will need to have repaired, which could cost you more than you can save.
Do not overestimate your do-it-yourself skills, either. There are some issues that might need more than your two hands to fix – and this could mean expenses in labor as well as materials.
Also, remember that permits are usually necessary for some repairs and renovations, depending on what kind and where you are. For example, you might need one if the 7-foot fence needs to be repaired or changed.
Cosmetic changes in the interior usually don’t need a permit but, often, you would need it for any addition or modification on the structure, electrical, plumbing, and gas system.
Changing the roof line, sewers, demolishing a part of the structure, adding a fireplace – these could be things that you need permission for.
The Associated Building Inspections, Inc. has posted the permit and inspection process for residential buildings, but you should also check the local building department what things would require a permit in the area.
In other words, if you overlook or deliberately ignore the damage in the house you intend to buy, then you are likely to be in for a lot headache.
· Offering More Than Necessary
Sometimes, buyers get embroiled in a bidding war, especially for a good piece of property. Try to avoid get sucked in by determining your ceiling price early on and sticking to it.
You wouldn’t want to pay a lot more than you can afford or even more than the actual value of the property in relation to its size, condition, and the neighborhood, just because you don’t want to lose the house to someone else.
Remember that the lending company might not approve your mortgage application if the price is higher than the appraised value.
Other Tips When Buying Your First Home
There are many other things that you should be aware of when buying your first home. Here are some tips:
· Learn About Personal Finance
Before committing to something big like real estate, you should have an idea of your assets, income, liabilities, and monthly cash flow.
If you haven’t done so already, record your finances – what you have, what you owe, what you earn, what you spend on, and what you save. It would be good to track these for a few months before deciding to buy property.
Also, learn about mortgage lending, how it works, how much the charges are, and what options you have. It would also be good to familiarize yourself with front-end ratio, which is housing expenses like mortgage payments and insurance divided by your monthly gross income (the result required by lenders is usually less than 28 percent); and back-end ratio, which is monthly debt payment like mortgage, credit cards, and car loan divided by monthly gross salary (the result required by lenders is usually less than 36 percent although some allow above 45 percent).
· Check Your Credit History
You should also check your credit score because this would affect how much you can borrow, if you will get approved. Your score is influenced by many factors, such as paying on time, how much credit you use in relation to your credit limit, how often you utilize it, etc. If you have a low credit score, start working on it, like paying your loans and not missing any more deadlines.
· Organize Your Documents
You would do well having your documents ready. This would lessen the things that you need to prepare when you’re already in the process of finding a house, and it would also make the process faster.
Buying a house is a big decision, but if you do it carefully and wisely, you will be able to take pride in something that many can only dream of.