This is the biggest purchase you’ve ever made – your first home. It’s been a dream for a while, you’re ready to switch your rent payments out to start building equity and deduct from your taxable income, but this isn’t a decision to make lightly.
It can seem super stressful and overwhelming, but the good news is you’re already taking the right steps just by reading this blog post. As long as you allow yourself to become aware of the whole process, you’re making it easier for yourself in the long haul.
It might be the biggest purchase yet, but that does not mean it has to be the most difficult.
Assess your situation.
Pay down your debt. Check your credit score and credit report. Have at least 20% of the house’s purchase price saved as a down payment. Calculate how much you can afford to spend each month – it’s typically recommended that buyers spend no more than 30% of their income on housing. You’ll need enough to cover earnest money (1-3% market price), down payment, and closing costs. Consider how you’ll pay for the house and look into being pre-approved for a loan if you need one (and which type of mortgage you would prefer).
Decide on your priorities before you begin looking.
The big one to focus on? Location or space. Would you rather a smaller place downtown with fantastic access to all the amenities of the city, or a larger place with a bit of a commute? When exploring locations, consider both assets of the neighborhood you would enjoy and factors that could affect the value of your home. For example, you’ll want to look into school districts. Even if you do not have children (or plans to ever have them), living in an area with a sought-after school system can help to raise your property value. In the same realm, it’s a good idea to check building plans for the neighborhood – you’ll want to avoid surprises after you’ve moved in.
If you may need another bedroom in the near future – perhaps for a home office or a nursery – don’t be afraid to get an extra one. It’s far easier to move furniture and reestablish the space than to go through another buying process, and, of course, you cannot add space where there is none. If you are completely over sharing apartment walls with noisy neighbors, consider that you may want a house rather than a condo.
Some things just cannot be changed – those are the main things you’ll want to focus on while touring potential homes.
Don’t be too picky…just picky enough.
Remember, the furniture and decor that is there during the showing is not what you are buying. That’s the seller’s home – you want to picture what it’ll be like when it is your home. You’ll need vision to see the potential of the homes you tour, and don’t let slight imperfections sway you away from what has the ability to be your perfect home. It could very well be thousands cheaper to hire a contractor than to pay the increased home value of a seller who has already completed this work. Buying a home that you know you can add value to ensures a bump in equity, so you’re doing yourself a favor in the long run.
Be prepared for what is expected of you, the buyer.
Closing costs are what usually send new buyers through a tailspin. They will include fees for commissions, appraisals, and surveying; government record changes, inspections and certifications; tax and title services; and transfer taxes. You may be surprised at how quickly these things can add up – the average cost is 3-6% of the full price of the home.
When it comes to documentation, you’ll almost always need W-2s, pay stubs, and bank assessments. In the case of taking out a loan, the lender may also ask tax returns for the past two years, statements from current loans and credit lines, and the contact information for your previous landlords. At closing, you will likely be asked to bring a valid picture ID, a certified check for any down payment due, and any other additional documents outlined by your realtor.
Know what to be prepared for in certain areas.
Take the time to calculate your monthly mortgage payment, property taxes, homeowner’s insurance, HOA fees, condo fees, and other monthly costs (such as cable, internet, heat, hot water, electric). Be sure to read any documents before closing so that you are aware of the contents, but also aware if certain fees will be rising in the next few years.
While you can’t predict the future of your neighborhood, you want to at least be aware of what is in the works. What are the zoning laws? Is there a lot of underdeveloped land nearby (if so – what could that become)? What have home values in the neighborhood been doing in recent years? Is the street a major street, a popular shortcut during rush hour, or adjacent to a school with backed up traffic around 8 and 3 every day?
Don’t skip the inspection.
You want to know exactly what you are signing up for before you bring pen to contract. Be patient for the inspections, and really consider and look closer at anything that may come up. This is your chance to learn if you are getting stuck with a money pit or a headache of unanticipated repairs. It’s always a good idea to keep yourself from becoming too emotionally attached to a property before the inspection has been completed. Once that inspection is done, request to take a final walk through of the property shortly before closing to make sure the home is in the condition you expect it to be in.