When you decide it’s time to buy a home, especially for the first time, there are a lot of very important details you need to know that can save you a massive amount of time, money, and problems if you just make an effort to pay attention to what you’re doing and use a little common sense.
I’m convinced that the reason so many homes were foreclosed on a few years ago is because the homeowner failed to use some of these common sense rules when they bought a house and ended up getting burned because of it.
The upside is that there ended up being some awesome bargains out there, especially for investors, due to the huge numbers of foreclosures and short sales that have happened over the last few years.
It’s definitely a buyer’s market.
“By wisdom a house is built, and through understanding it is established.”- Proverbs 24:3
So what are some of the things you absolutely must do when you’re buying a home to make it a wise financial decision? Let’s take a look:
1. Figure Out How Much Home You Can Afford
Many experts recommend having a mortgage payment of no more than 30-33% of your net monthly income (I’ve even seen higher recommendations), but I believe that 25% is a much more reasonable amount and will end up serving you better in the long run to help keep you out of financial trouble.
Never, ever let the bank or mortgage company tell you how much you can afford to pay for a home. Their job is to tell you how much they will approve for you to borrow, which is usually much more than you should actually spend.
So be careful, just because they approve you for a certain amount doesn’t mean you should spend that much.
2. Get Prequalified
Once you’ve decided how much you can comfortably afford to spend on a home, go ahead and get prequalified for a mortgage. That way, the seller knows you’re serious.
When you already have financing in place you’ll be much more likely to close in a timely manner without any delays because of the sometimes tedious process of getting financing for your purchase.
3. Choose the Right Mortgage
The shorter the term the better. Why? Because you save money on interest. Buying the same house with a 15 year mortgage versus a 30 year mortgage will save you tens of thousands of dollars. Plus you’ll only have 15 years of mortgage pain as opposed to 30.
Yes I know the payment is higher on a 15 year, but it's worth it to keep from spending all that extra money in interest. It's your money and it will stay in your pocket if you act wisely.
Also, choosing a fixed rate mortgage is wise. If you choose an adjustable rate you are basically gambling. You cannot predict the future, and when you try to, you will get burned. Besides, we’re seeing historic low rates right now, so where do you think the rate is more likely to be in a few years when it comes time for your variable rate mortgage to adjust? Yep, probably higher.
Don’t gamble when buying a home!
4. Have a Down Payment
The higher the down payment you have, the better position you’ll be in.
Having a sizeable down payment helps to keep you from becoming upside down (your house is worth less than you owe on it) if housing prices fall. Also, if you put down 20% or more you can avoid having to take out private mortgage insurance (PMI) that will make your payment even higher.
Plus, having a larger down payment helps to prove to yourself and your lender that you are financially responsible enough to take on a house payment. I always recommend at least a 20% down payment when buying a home.
Of course, the best way to buy a home is to pay cash, but I know that’s just not feasible for most people.
5. Get a Realtor
A realtor is a real estate professional. A good realtor will always take the time to educate you about the process, about the market where you want to buy, and about how to buy wisely.
A really good realtor can sometimes be hard to find, so make sure to find a professional that comes highly recommended by friends, family, coworkers, etc. If you choose just anybody, thinking they are all the same, you may get a realtor that cuts corners ethically, doesn’t keep you updated on the market, doesn’t answer phone calls in a timely manner, or otherwise take good care of you.
Remember, these are service professionals and you should expect them to provide excellent service. If not, find someone who will.
6. Compare Prices
Comparing home prices is as much art as it is science.
A good realtor should be able to help you with this. You want to compare the price of houses in the area where you’re looking to make sure you don’t end up overpaying. Homes in the same general area can vary widely according to size, condition, amount of land, and other factors.
Your real estate agent should be able to assist you in navigating through these waters to make sure you spend the right amount of money on the right property and negotiate the right price.
7. Avoid Getting “House Fever”
It can be so easy to get caught up in the emotion of buying a house, especially if it’s your first one. So take it slow, take your time, and wait for the right home at the right price. Don’t jump too quickly and spend more than you intended because you got caught up in the emotion of buying a home. You have to make sure and keep some emotional distance between you and your home purchase.
Don’t let the siren’s song of granite countertops and custom cabinets lead you into the rocky abyss of buying more house than you can afford. Check your emotions at the door and learn to look at it objectively.
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8. Take a Lot of Pictures
You’ll probably end up looking at a lot of houses during the buying process, and each one is going to have its strengths and weaknesses. Take detailed pics of each property, highlighting the good and bad aspects of each one. This will save you a lot of time because you can compare each property side by side without having to make multiple visits (House with hardwood floors, check. House with the green bathtub, buh-bye).
Once you've had time to eliminate the homes you don’t want, then you can go back and take a second look at the ones you do want.
9. Get an Inspection
Getting a home inspection is usually required by the mortgage company. An inspection by a certified professional home inspector can save you a ton of headaches and lots of money. They can find things wrong with a house that may not be readily obvious, which can protect you from buying a home with hidden problems that could cost you thousands of dollars in repairs, like mold or a posse of ‘possums living in the attic insulation.
A good inspector will cost you a few hundred dollars, but that money spent is well worth the peace of mind you get from knowing exactly what kind of shape the house is in.
10. Don’t Buy if You Don’t Plan on Staying a Few Years
Buying a home is a huge commitment, and if you think you’ll only be there for 2-3 years it may not be worth paying all the fees that come with buying a home, only to sell it soon after. Staying in a house only a short time doesn’t allow enough time to gain enough equity to offset the expenses of buying a house.
Sometimes you may have a surprise job transfer or a change in life circumstances that means you have to move after only a couple of years, but if you know starting out you won’t be there long, renting may be the better option for the short term.
11. Get a Title Search Done
A title search is also required by the mortgage company. A title company searches all available public records to make sure there are no liens against the house and that the person selling the house is the legal and rightful owner. If any problems are found they can be resolved before the sale moves forward.
12. If You Already Have a House, Sell It First!
I cannot stress this enough, SELL YOUR HOUSE FIRST! Especially when the real estate market is slow. It may take months, even a year or two to get rid of your existing house. Buying a new house before you sell the old one results in two house payments as well as double the electricity, gas, water, and other utilities (you have to keep them on in order to show the house to buyers).
Not selling your house first will drain you financially, and if it goes on long enough it will force you to take less for your house just so you can get out from under those extra expenses. It’s a money losing proposition no matter how you look at it. Believe me, I know this from personal experience.
So that’s all I have for now. I hope these 12 little slices of house buying knowledge add up to one extra large pizza pie of low stress home ownership for many years to come.
Do you have any tips to add? Did you make any mistakes when you bought your home? Leave a comment on our Facebook page or below and tell us about it…
Leave a comment and tell me about it.