Learn the important facts you should consider before buying a home. This article covers what to know about buying a house to help you avoid costly mistakes. —-
Buying a home is one of the biggest decisions you’ll ever make in your life.
You might be wishing right about now that your high school or college had offered a few classes on what to know about buying a house. It can be an overwhelming process with plenty of room for catastrophic mistakes.
First-time homebuyers usually don’t know what they don’t know about buying a house because, well, it’s their first time! Some buyers might not even know that actually, they’re already prepared to start shopping!
You’ve probably heard horror stories about new homeowners who regret their decision. They fell in love with a home and rushed into buying, heedless of whether it was outside of their price range or maybe ignoring issues found during the inspection. Overall, around 44% of homeowners end up regretting their home purchase, according to a Bankrate survey.
These mistakes could stick with you for years to come and have far-reaching implications, so it’s crucial that you carefully consider the details. In this article, we’ll take a look at what to know about buying a house as a first-time homebuyer as well as give tips for how to avoid buyer’s remorse.
1. You might be readier to buy than you think
Buying a home for the first time is a scary prospect. Affordability is the top concern for around 60% of homebuyers. There are a lot of costs you have to worry about, such as the down payment, closing costs, your monthly mortgage amount, and more. It’s enough to send anyone into a panic.
However, you might be surprised to know that you don’t necessarily need a massive savings account to purchase a home. There are several options available for homebuyers who have a small down payment.
While 20% is named as the standard down payment amount, it’s a standard that’s rarely met by most homebuyers. According to a 2019 report by the National Association of Realtors, most first-time buyers only manage a 6% down payment.
If you expect to pay between 3% (the minimum for a down payment) to 6%, then some of your options include an FHA loan, a Fannie Mae HomeReady loan, or a conventional loan.
You also don’t want to forget to calculate how much the monthly mortgage payment will be and whether you’ll be able to easily afford it.
“Buy a home where the payment will be comfortable for you, not the max amount you’re approved for,” recommends Ryan Ogle, a top-selling real estate agent in Grand Rapids, Michigan, who’s sold 66% more single-family homes than other agents in his area. “Remember, you still have to buy furniture and other things.”
What if you have a low credit score? That may not necessarily prevent you from buying, either! The Freddie Mac Home Possible loan is designed for buyers with lower credit scores. There are also other loans available for buyers with low credit scores, which your loan officer can share with you.
That said, there are pitfalls you should be aware of while looking into your options. It’s likely you’ll have to file some extra paperwork and deal with additional monthly fees if you have a low down payment or credit score.
Risky loan environments (such as the COVID-19 pandemic) can also affect the standard minimums for down payments and credit scores. Choosing to shop for a home below your maximum loan approval limit can help you out a lot.
2. You’ll want to talk to more than one lender
It pays to shop around for a home loan, but saving money is only one of the benefits.
When you compare lenders, you’ll have a better grasp on lender origination fees, mortgage insurance premiums, third-party fees, and more. Shop with a variety of lenders, such as credit unions, big banks, and online lenders. Finding the right mortgage is every bit as important as finding the right home for you.
Even if you think you have a great deal, you should still shop around. Different lenders offer different rates. Choosing the wrong lender could wind up costing you tens of thousands of dollars over the lifetime of your loan.
You’ll also want to remember that your mortgage payment will include taxes and homeowner’s insurance, and sometimes HOA fees, too. Whatever number you are quoted for your monthly mortgage payment, you’ll want to add those two items on top of it so that you know what your full mortgage payment amount will be.
3. Don’t buy for today; buy for tomorrow
Have you ever viewed a home that you fell in love with for its perfect landscaping and backyard, but it was maybe a bit smaller than you wanted? When it comes to buying a home, it’s important to not let your emotions run away with you. If you hope to start a family in the future, that lack of space will come back to haunt you in a big way sooner than you think.
Many experts state it takes an average of four years to recoup the costs of buying a home. If you end up having to sell your home and buy a new one in just a couple of years because you outgrew it, you’ll be losing out on thousands of dollars.
So, while you’re shopping for a home, keep the future in mind and ask yourself questions. Do you plan to have children? Are you wanting to adopt a pet? Will you need roommates to help pay the mortgage?
If you remain mindful of what the next year might hold in store for you, you’ll increase your odds of feeling content with your new home.
4. Working with a top agent can save you money
The best real estate agents are top negotiators. They can manage to secure a lower down payment, or even save you money during the negotiation process.
When you risk buying a home without an agent, you might find yourself facing unexpected costs you could have otherwise avoided. A real estate agent can help get a seller to pay for repairs — or even take on some of the closing costs.
5. Foreclosure pros and cons
When you’re looking at buying a home in foreclosure, you might end up with more room for negotiation. There’s also a huge potential for a return on your investment. However, these advantages rely upon a lot of “ifs.”
One of the biggest drawbacks to a foreclosed home is that you’re buying it as-is. You aren’t allowed to inspect the property beforehand. This means you could get blindsided by costly repairs, like plumbing or structural problems.
6. Pay attention to all your senses
When you tour the home you’re interested in buying, don’t ignore your instincts and make sure you take your time absorbing everything carefully.
You should be on the lookout for key indicators of an underlying problem, and ask your agent lots of questions. For example, a sloping floor might hint at foundation problems. If you notice an odd smell while walking through a certain part of the property, that could mean there’s mold or mildew present.
Pay more attention to the possible issues than to what you love about the house. What might look like a light fixer-upper at first could turn into a money pit all too fast.
7. Look beyond the surface
Unfortunately, too many buyers allow a minor superficial trait to sway their “should I buy this house?” decision. If the home has the perfect floor layout but ugly wallpaper in the bathroom, that’s a fix that won’t break the bank. But if you fall in love with a quaint home with a lovely landscaped yard but too little indoor space, it’s going to cost you more to try to build an additional room.
Many sellers hire a professional to help them stage their home. Be careful to not let a home that’s super cute (or super ugly!) on the surface sway you too heavily.
8. The inspector will inevitably find something wrong
It is a worthwhile investment to hire an inspector to check over any home you’re interested in buying. No home is completely perfect. Even a brand new home is likely to have at least one issue in need of resolving. Inspections can save you a lot of money in the long run.
Cris Didonato, who currently works for Accurate Home Inspections and has more than 30 years of experience working as a home inspector, says a first-time homebuyer should be on the lookout for issues with any major systems or components, like the roof, HVAC, and foundation. He adds, “if it’s an older home, you’re going to be concerned with the electrical system and maybe the plumbing.”
And there is more than one type of inspection…
There are several different types of home inspection you might want to consider getting. Some may depend upon the region in which you’re shopping for a home.
If you live in a warmer climate, you might want a pest inspection. If your home has a basement, then a radon test might be in order. There are also several different types of specialized home inspections you should consider before buying a home.
…But who fixes any issues is negotiable
If you do discover a problem with the home, you’ll need to negotiate with the seller over who handles the cost of the repair. Either you can offer to pay for it (and thus have complete control over the quality of the work), or you can request that the seller handle the issue.
This is another prime example of why working with a real estate agent is to your benefit. If you do want the seller to cover the cost of repairing the problem, a top agent will be able to handle the negotiation and keep the deal favorable to you.
9. Don’t forget about transition costs
Aside from worrying about closing costs, there are transition costs you should keep in mind.
If you have to move across the country, you’ll need money set aside for it. There are a lot of hidden costs involved with moving, from hiring a professional mover to buying packing supplies.
If you want power when you get there, you’ll also need to put a deposit down on the utilities. What about the internet? That’ll also require you to pay an installation and activation fee.
10. Be realistic about the timeline
Buying a home takes time. Don’t get too distressed if you experience a delay.
There are a variety of factors that can cause delays in the closing process. Some of them are preventable!
For example, avoid making any huge purchases right after applying for a home loan. This can cause a change in your credit score or debt-to-income ratio, which can affect your mortgage approval. Lenders keep tabs on your credit throughout the financing process and can cancel the loan if it looks like you’ve accrued too much debt during the financing process.
Of course, some problems are outside of your control. If the seller has a lien on the title, the title company is going to need time to investigate it. The seller will have to get the title cleared before you’ll be able to buy it. Title issues account for around 11% of closing delays.
11. Make sure you budget for closing costs
Closing costs typically add up to between 2% and 5% of the full loan amount. They include lender and broker fees that are set by your lender (examples: mortgage application fee, loan origination fee) and third-party fees set by, well, the third parties in the transaction (examples: transfer taxes, title and escrow fees).
It’s vital that while you shop around for a home, you be absolutely sure that you can handle the closing costs. As a homebuyer, you need to know upfront what your maximum potential is for closing costs.
A top real estate agent in your area will be able to help you navigate the complexities and stresses of buying a home. Ogle notes that working with an experienced real estate agent can potentially save you between 2% and 4% of the home’s listing price.
Don’t try to shoulder the responsibility alone. Instead, let an expert help get you the best deal for your money’s worth.
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