The process of buying a home could be summed up into 3 words — It. Is. Expensive. Whether you are a first-time homebuyer or selling one dream home for another, there are tons of things that you should know before buying (in addition to the fact that it’s expensive).
Aside from the obvious things, such as getting pre-approved, what do you need to know before signing on the dotted line? Even if you already own a home, you may still find some of the tips in this article very surprising, insightful and helpful.
Homeownership is an exciting experience and one that should be enjoyed thoroughly, but the excitement can quickly turn to frustration if we don’t know all the ins and outs of purchasing a home. Don’t learn the hard way — do your research before buying. Remember, sellers often make mistakes too! See 10 mistakes sellers make and be able to discover them from the buyers perspective. This could help you in negotiating or by giving you an advantage when talking with the sellers.
Here are some things you may want to consider:
1. Should You Really Give Up a Great Rental to Buy?
Over and over again we have been told that home ownership is a smart investment, and that we should stop throwing away our money on rent.
Let’s stop and think about this scenario for just a moment. Let’s play devils advocate. Assume that you are currently renting a great little apartment for $1000 per month. Heating and utilities are included, there is a nice fridge, oven, dishwasher and microwave provided, and there are great laundry facilities available. In this situation, you know that your monthly costs are exactly $1000 per month.
Now, let’s pretend you forgo this lifestyle because you dream of owning your own home. After house hunting, you find your dream home, so of course you excitedly buy it. After all, the bank says that your mortgage will only be $1200 per month, so you can pull that off, right? Wrong!
Here are some additional expenses that you may have forgotten about. Expenses that fluctuate on a monthly basis, thereby forcing you to have a large nest egg set aside: heat, water, electricity, property taxes, home owners insurance, lawn care, home association dues, home maintenance costs for when things break (and they will), furniture to fill the home, washer and dryer (now that you don’t have those nice laundry facilities) and all the kitchen appliances that were provided up until now —Does buying still seem enticing?
2. Hire a Buyers Agent
If the above list of expenses doesn’t scare you, and you still feel ready to buy, then hire a very reputable buyers agent.
These are real estate agents that are meant to solely represent you and help you negotiate the best possible price. These agents are supposed to be professionals and highly skilled at negotiating.
There is only one cautionary tale when it comes to buyer agents — they are only human so, of course, their own financial gains are also being taken into consideration. This means that the more you pay for the home, the more the agent makes in commission.
You need a buyers agent to help you negotiate, but their sole goal may not be to get you the lowest possible price. It is best to politely, yet firmly, push for the price you want and then have the buyers agent negotiate this price.
Simply put, don’t go into this blindly and assume the agent will do all the work for you. You need to be your own proactive advocate when it comes to the negotiation process.
3. Buy a Home That You Can Really Afford
There is nothing worse than living in a glorious home that is devoid of furnishings because you are too broke to buy a couch. Getting a great mortgage rate can make monthly payments a little less harsh ( and hopefully allow you to have some money left over for furniture).
In order to get a great mortgage rate it is best to get your credit score as high as possible before pre-approval. Some people swear off credit applications a year before buying a home, in order to increase their score. Of course, it also helps to pay all your bills on time.
There are numerous online calculators, such as this one by Bankrate, that helps you calculate just how much home you can really afford. Many websites also suggest that you “try before you buy”.
Essentially, before buying, try setting aside the monthly expenses for the home you plan to buy (minus what you are paying now in rent/mortgage). If you can pull this off for a few months, then you have a little nest egg established, and you know that you can probably afford the monthly payments that come with the new home you want.
4. Buy in a Top-Notch School District, Even if You Don’t Have Kids
This is one idea that you have probably heard before, but it bears repeating. Buying in a well-known, high-rated school district is like investing in a sunscreen business in the tropics — a winning scenario.
Maybe you don’t have children and never plan to, but when it comes time to sell your home, the new buyers are likely to be looking for a great school for their children.
Homes in school districts are more likely to go up in property value and are more likely to sell faster. To find schools in your area that have great ratings, check out Great Schools website.
Start your home shopping in areas with top-ranked schools, but remember to stay within your price range. Realtors can try to show you homes that are slightly above your range, but hold firm — you know what you can afford.
5. Talk to the Sellers
Most home buying transactions are done by the buying agent and the selling agent, making you feel a bit like a third wheel. We don’t usually get to talk to the selling agent first-hand about negotiations, and that is OK, but wouldn’t it be nice to talk to the sellers of the home?
The sellers are the ones who know everything about the property and surrounding neighborhood. Sure, they may not disclose that their neighbor stays up and parties all night, but they can tell you what they like about the house, neighborhood and school. They can share information about renovations they did, gardens or trees they planted, local clubs, neighborhood dog sitters and babysitters etc…
If the sellers are not interested in talking with you personally, then maybe you could write out a list of questions for them and have your realtor give it to their realtor. Sellers are by far the best source of knowledge — a source that most don’t think they can use, but why not? The worst they can say is, no.
6. Hire a Contractor Before Buying
The home of your dreams has been found, and a tentative price has been negotiated with the help of your buyers agent. Now you need to hire a home inspector to make sure there are no major problems with the home.
The inspector will likely find at least a few things that need to be repaired. Once this happens, hire a home building/maintenance contractor— don’t automatically take the credits for repair that the sellers agent has offered.
Most of the time these credits will not cover the actual cost of repairs. By hiring a contractor, you get a realistic estimate of what it will cost to repair the problems. Use the contractors quotes as a tool to negotiate the cost of the house or the repair credits.
With proof of the actual cost of reparation, the sellers agent will have a tough time negotiating with you — giving you the upper hand.
7. Don’t be Afraid to Walk Away From the Deal
There are some tough negotiators in this world, and it can be hard to seal the deal when one person is unwilling to budge.
If negotiating has come to a stand still, don’t be afraid to walk away. Yes, you love the home and you already pictured yourself living in it, but it’s not worth it if you end up paying more than its worth to you. You will live to regret it; you will play the forever game of thinking, “ I should have held out for the price I wanted”.
Sometimes walking away is the best way to motivate the seller to agree to your terms. In the end, whoever is willing to walk away is the one that holds the negotiating power.
Go into the deal knowing what your final price is, and stick to it when negotiating.
8. Stay in the Home for Several Years
The home is yours! You have negotiated a reasonable price and are ready to start planning the move. Here’s the thing: you need to stay in that home for several years in order to hopefully gain a profit.
If you are lucky and the market is right, then your home will exponentially increase in value as time goes on.
With all the costs of moving and closing costs, there is little chance of making any profit on your home unless you stay in it for several years, allowing the market to hopefully work in your favor and increase your homes value. If you are trying to buy an older home it helps to see if the sellers have lived there for several years. They will know the condition, the neighborhood and other key factors. To see more tips about buying an older home, see our post here.
If you feel that your life circumstances are too unpredictable to guarantee staying in one place for several years, then maybe you should reconsider buying a permanent home (consider this before putting in a legally binding offer, please).
9. Wait Before You Decorate, Buy Furniture and Do Renovations
It is so tempting to jump into your new home with paint brush in hand. Nights have been spent dreaming of the furniture you want to buy, the colors you will paint the walls, and the basement remodel you will do—but wait.
Knowing what works in your new home requires living in it for a while. Use this new space as it is, and you will begin to see what is missing. Maybe you will discover that you dislike the kitchen layout and would prefer to spend remodeling money on a kitchen renovation. Or maybe you will fall in love with a new bedding set and decide to paint your bedroom walls around its color scheme.
Everything will fall into place eventually, and there is no worse decorating mistake than buying everything all at once and ending up with a home that looks too matchy, matchy.
10. Set Aside Money on a Monthly Basis for Repairs and Renovations
Budgets are tight and living costs are high, but when you take on the responsibility of owning a home you really need to save for a rainy day.
It can be tough trying to save if you are living paycheck to paycheck, but some money set aside is better than none. Sometimes home ownership means saying goodbye to those pricey lattes, dinners out and movies. If your thoughts are lingering on buying a new home, then start saving immediately — even it means giving up some lavish lifestyle habits for a while.
Bank of America says that you should save 6 months worth of major living expenses. Try to make this your goal — it will be worth it in the end when you own the home of your dreams.
Home ownership is not for the faint of heart. It involves a lot of stress and worry over money. The better prepared you are financially, the better off you will be when it comes to owning your own home. Seek advice from a knowledgeable buyers agent, and arm yourself with as much information as possible before going on house tours. If you need more home buying tips, look to our tips here.
All the hard work will be worth it when you cross the threshold of your new home. Are you in the process of buying a home, tell us what tips you would share?