If you’re searching online for advice about buying a home, chances are that you’re a first-time home buyer. Otherwise, maybe it’s been awhile since you purchased a home, and you’d like to brush up on the do’s and don’ts. Either way, it’s wise to take a measured approach to the situation.
After all, buying a home is typically the largest purchase that most people make. The internet is bursting at its seams with home-buying advice, but wading through all of that info can be overwhelming.
To make things easier, we’ve hand-picked 35 things that you should take into consideration before sitting down at the closing table. Keep them in mind to lay the groundwork for the smoothest home-buying experience possible.
1. Homeowner’s Insurance May Be Pricier Than You Think
If you’ve only rented up until now, you might assume that homeowner’s insurance costs roughly the same as renter’s insurance. That is not the case at all. It tends to be significantly more expensive, and it is based primarily on the costs that you would incur in order to rebuild the same exact house today.
Homeowner’s insurance is typically collected through monthly mortgage payments and held in escrow until it is due, so it can make your monthly mortgage payments much higher than you would think.
2. A Down Payment is Very Important
If you absolutely can’t come up with a 20-percent down payment, an FHA, VA or other low-down-payment loan may be the answer. Ideally, however, you should have at least 20 percent to put down. This demonstrates that you have the financial prowess that’s needed to be careful with your money.
It also eliminates the need for mortgage insurance, which typically equals about 1 percent of the total balance of the mortgage each year. Until the principal that you owe drops below 80 percent of the value of your home, you will keep paying mortgage insurance. For a $200,000 mortgage, that adds up to an extra $2,000 per year. Lending Tree typically has great down-payment loans.
3. You’ll Never Not Have a House Payment
With any luck, you will someday pay off your mortgage. However, that doesn’t mean that you won’t have a payment anymore. You will still be responsible for the property taxes and homeowner’s insurance.
There’s also the cost of maintaining the home, which can be considerable. If you’re only buying because you look forward to a day of owning a place free and clear, you might want to keep renting for now.
4. Maintenance and Repairs are Your Responsibility
You are surely aware of this logically, but really think about the implications of maintaining a home that you own. As a renter, you could just summon maintenance when something went wrong. As a homeowner, the buck always stops with you. Are you ready to either hire someone or to do the work yourself?
5. Use Rent Versus Buy Calculators
Homeownership is right for many people, but it’s not for everyone. Given what a major commitment buying a home is, it’s crucial to be as sure as you can be that owning a home is right for you.
Fortunately, there are many easy-to-use rent versus buy calculators out there, including one from the New York Times. Play around with them to get a better feel for how practical it is to buy a home right now.
6. The Yardwork is Yours to Handle
Unless you buy a condo, you are also going to be responsible for maintaining your yard and landscaping. This doesn’t mean that you have to maintain an impeccable yard. No one is going to force you to plant flowers or to start a garden. However, it does mean cutting the grass, trimming the bushes and, depending on where you live, shoveling or snow-blowing the sidewalk and driveway during the winter.
7. Consider Your Commute
All too often, people talk themselves into buying a home that’s far away from where they work. The property taxes may be cheaper where you are looking, or there may be better deals to be had, but if you are driving a few hours each day, it may not be worth it financially.
Don’t just look at a map when calculating the commute. Drive it yourself during the same time of day or night that you normally would, and imagine doing that same drive every day.
8. Shop Around for a Mortgage
Home buyers often find homes first and look for mortgages second. The problem with this is that they usually take the first mortgage that they are offered because they’re so eager to snag that house. It’s much more financially responsible to do things the opposite way.
Shop around for mortgages before searching for an actual house. Meet in person with multiple lenders, and check out the various loan products that they have and the rates that you qualify for. When you find the right house, you’ll already know your financing options.
9. Get Pre-Approved
In the same vein, always obtain a pre-approval for a mortgage from a lender before searching for homes in earnest. While you may not have settled on a particular lender or loan at that point, having paperwork that shows that you are able to get financing makes it a lot easier at the negotiation table. Without a pre-approval, you’re apt to be turned down in favor of more qualified buyers.
10. Start Small
After consulting with lenders and obtaining a pre-approval, you may feel a bit like a kid in a candy store. Whatever you do, don’t start by looking at homes that are on the high end of your approval range. Instead, start with homes that are on the low end of that range.
Remember, affordability is key. By starting small, you’re likelier to find a great, affordable home that you can make your own instead of a fancy, expensive home that you will struggle to afford.
11. Consider Getting a 15-Year Mortgage
Like most home buyers, you may already be planning to get a 30-year mortgage. This is the default, and that’s mostly because 30-year mortgages have lower monthly payments. What most don’t realize is that you’ll end up paying a lot more in interest, and you’ll owe the bill for twice as long.
You’ll pay about one-third as much interest with a 15-year mortgage, but your monthly payment will be higher. Many experts believe that if you can’t afford the 15-year monthly payment, you can’t afford the home.
12. Keep Your Debt-to-Income Ratio in Mind
Add up all of your debts and the associated monthly payments. When considering a home, take your monthly debt payment and add it to the estimated monthly mortgage payment.
The grand total should not exceed 40 percent of your pay after taxes. If your debt payments and mortgage payment together exceed 40-percent of your take-home pay, you’re biting off more than you can chew.
13. Don’t Sink All of Your Cash into Closing
While it’s important to have a good down payment for closing and to have the funds that are needed to cover other closing costs, don’t spend all of your money at closing. You will need plenty of cash in the days and weeks after buying your home.
Most people end up needing to buy various odds and ends for their new places. This is especially true about those who were renting before, as they usually don’t have the typical household items. There may also be repairs and other work to do, so budget accordingly.
14. Only Hire Experienced People to Help You
Buying a house is a major financial commitment, so it’s crucial to get help from people who have proven experience. This applies not only to your real estate agent and mortgage broker, but also to your home inspector, attorney and others as well.
Don’t settle for reassurances stating that they have the experience and expertise that are needed. Ask for references and do some research to make sure that you are in good hands.
15. Negotiate, Negotiate, Negotiate
Like many people, you may be pretty uncomfortable with negotiating. Sellers bank on this and use it to their advantage. The fact is that you are about to sign a very serious contract. Its terms are, in fact, negotiable. Therefore, you shouldn’t just negotiate about things like the price and closing costs.
Be sure to read the contract carefully and negotiate to ensure that you get what you want. Obviously, your agent will do the actual negotiating on your behalf, so hire one that thrives on it.
16. Don’t Let Yourself Be Pressured
If you think pressure tactics are bad when buying a car, wait until you experience buying a home. People tend to get their hearts set on the homes that they find, and they allow others to pressure them into agreeing to terms and prices that aren’t really fair because they are blinded by their emotions.
You may even find your own agent doing this to you at times. If they do, find a different one. Otherwise, remember that this is a business transaction and that you have the right to take your time and think things through.
17. Buy a Home That You Can Afford Now – Not Later
Whatever you do, don’t base the affordability of your new home on what may transpire in the future. Even if you are absolutely certain that your income will go up or that your current debts will go down significantly in the near future, don’t base your decisions on that. Base them on how you are doing right now.
18. Give Yourself Time
Buying a home is not something that should be rushed. You not only might end up with the wrong house, but you might end up with a mortgage that you can’t really afford.
It’s not always possible to devote six months or a year to buying a home, but you should do so if at all possible. This timeframe includes getting your credit into shape, saving up a good down payment and actually hunting for and buying a home.
19. Think Long Term
While you should base your buying decision on your current situation, you should also think long term when buying a home. Here are a few questions to ask yourself:
- How long will you stay there?
- How easy or difficult will it be to resell at that time?
- Will your family grow in size while you are there?
- Is this the home that you hope to retire in?
Try to hash out these things to ensure that you get a home that will suit you well for the foreseeable future.
20. Make a Checklist
It’s easy to get overwhelmed when looking at one home after another. Figure that out beforehand and put it down in a checklist. Your checklist should include must-have features as well as nice-to-have features.
Bring a fresh copy with you to each home that you visit, and check the applicable boxes. Being able to see how well a house “stacks up” in black and white makes it a lot easier to make a strategic decision.
21. Understand All of the Costs
Much more goes into a monthly mortgage payment than principal and interest. To ensure that you end up with an affordable home, sit down and crunch the numbers carefully. Your mortgage payment will most likely include principal, interest, homeowner’s insurance and property taxes all rolled into one.
Go beyond that by estimating your utility payments and other costs. You can call the local utility companies for estimates, or just ask a few people in the neighborhood. The point is that you don’t want to be surprised after it’s too late.
22. Beware of Homeowner’s Associations
Home buyers often overlook this expense and the other implications of having HOA rules to abide. Homeowner’s association dues are often considerable, rendering a home that seemed affordable to not. Obtain a copy of the homeowner’s association contract to make sure that you won’t be held back by certain rules.
For example, some HOAs do not allow homeowners to rent out their homes. By understanding the implications of buying a home with a homeowner’s association, you will be able to make a more informed decision.
23. Look into Grants and Other Sources of Funding
You don’t necessarily have to have low income to qualify for certain grants and other sources of funding. Many programs have surprisingly generous income limits, but many people don’t bother looking into them because they assume otherwise.
Some programs are geared toward certain professions, like law enforcement and teaching. Others provide funding to help people who are buying homes in certain areas, including low-income areas and rural areas. You have nothing to lose by looking into such programs, and you might even gain a more affordable deal.
24. Read the Contract Before Signing It
Make sure to carefully read everything before you sign it, especially the purchase agreement. The one difficulty is that such documents are usually written in dry, confusing legalese.
This is why it pays to have an attorney by your side. Your broker or agent may be able to decipher it for you, but an actual lawyer will do a better job of it most of the time.
25. Hire a Real Estate Lawyer
People often think that real estate lawyers are only needed for massive real estate transactions, but that’s not true. This is a major commitment, and the last thing that you need is for something to slip through the cracks. Hire an attorney to look over all contracts and other paperwork for you before you sign them.
Your lawyer will also be able to look over all of the closing documents to ensure that they are in proper order. You will feel much better about things knowing that they have been cleared by an attorney first.
26. Consider the Neighborhood’s Demographics
Always keep an eye to the future when buying a home. A good way to do this is by considering demographic trends for the neighborhood where you are looking. See if people in your area are renting or buying. This information will give you a clearer idea of what to expect in the years to come, especially in terms of how easy or difficult it will be to sell the place down the line.
27. Look Past Staging
When touring homes that you’re considering buying, don’t get swept away by the staging. Many homes will be expertly staged to the point where certain flaws and issues go unnoticed. When touring a home, look past the staging and consider its overall structure and layout.
If possible, imagine the place without the furniture and decor to decide if you’d still like it. Unless you’re buying it furnished, most of those items will be gone when you get the keys.
28. Don’t Skimp on the Inspection
A home inspection is your only opportunity to ensure that major issues aren’t lurking somewhere on the premises. Unfortunately, buyers often rush through this stage, treating it more as a formality. Do some research to find an experienced and highly recommended home inspector to do the work.
Pay extra, if need be, to have the home inspected for pests and radon too. Even if issues are found, all may not be lost. Sometimes, you can use these as bargaining chips during negotiations to secure a better deal.
29. Get a Feel for Current Market Conditions
When embarking on your home-buying journey, do some research to see what the real estate market is like. If it’s a seller’s market, it often means that there are bidding wars happening, causing prices to rise and things are very competitive. If it’s a buyer’s market, you will have a much easier time. Knowing what to expect will make things easier.
30. Check Your Credit Report
Even if you are completely certain about your credit situation, pull all three credit reports before visiting mortgage brokers and other lenders. Mistakes sometimes happen, so you should look everything over carefully to ensure that everything is accurate.
Your creditworthiness has a profound impact not only on your ability to get a mortgage, but also on what kind of interest rate you will get. If need be, take steps to improve your credit prior to applying. Bringing up your score even a little could save you thousands over the life of your mortgage.
31. Check the Local News to Learn About the Area
Minimize the risk of being surprised to construction changes this by checking news stories for the city, town or county where you are looking to live in. Check to see if there are any major projects in the pipeline or if there are any new or exciting services coming to your area. Knowing these things will help you considerably when making your decision.
32. Request Proof of Home Improvement Work
It’s important to ask for proof of home improvement work. Obviously, this won’t always be available. It never hurts to ask, though, since the improvements could very well affect how much you end up paying as well as the value of the home. If the seller exaggerated about the quality of the work that was done, consider what he or she says carefully.
33. Investigate Property Taxes in the Area
Unfortunately, property taxes often fluctuate a lot in many communities, as homes are often appraised on a regular basis. In many communities, schools are largely funded through property taxes, and this tends to make them increase frequently. In turn, monthly payments go up. Contact the assessor’s office or city hall to find out how property taxes are handled.
34. Practice Paying Your Mortgage
After crunching some numbers, you should have a decent estimate of how much you can afford to pay each month. If possible, spend a few months before buying your home setting aside that payment. In other words, pretend that you are paying, but pay it to yourself by putting it in your savings account.
Make sure to include insurance, taxes and upkeep in your estimate. This allows you to confirm that you can, indeed, afford your payment. It also helps you save up a little extra money before closing, which is always a good thing.
35. Plan on Staying Put for At Least Five Years
Unforeseen circumstances sometimes arise, but you should plan on staying in your new home for at least five years to make it worth your financial while. Most experts agree that you must stay in a home for at least that long to recoup whatever expenses that went into buying it.
A major exception is if you plan to buy it and then flip it. Otherwise, to make the soundest financial decision possible, aim to stay in the home that you’re buying for a minimum of five years.
Buying a home has never been an easy task. This may seem like a lot to manage, but it’s well worth it to put the extra time, effort, thought and preparation into such an endeavor.
By keeping the points above in mind and making informed, strategic decisions, you will have a much easier time finding a terrific home. More to the point, you’ll have an easier time finding one that you can afford, and that’s the most important thing of all.
If you have any important tips to consider before going out and buying a new home, feel free to leave them down below. We’d love to hear about them. Thanks for reading and happy frugaling!