It’s a cold and snowy February afternoon. You’re sitting on the sofa in your rented apartment and, suddenly, a thought pops into your head. You’re done with this! No more renting – you want your own house. Maybe it’s loud neighbors or maybe you’ve read about the housing market trends for this year. But one thing is certain, you want to become a homeowner.
It’s an important decision and, for the majority of Americans, it’s the biggest purchase you will ever make. Unfortunately, there are way too many pitfalls awaiting the unsuspecting first-time homebuyer and these can seriously harm your financial situation, or even wellbeing. To avoid this, we’ve prepared some tips which should help you along the way. Ready?
Assess your finances
In December 2020 the median listing price was $340,000, and that’s only the listing price! Overall, you should be ready to have several monthly expenses:
- Loan Principal
- Loan Interest
- Property Taxes
- Homeowner’s Insurance
- Utilities
On top of that, you’ll have to face a number of one-off expenses when purchasing a house, such as:
- Down Payment
- Closing Costs
- Underwriting and Origination Fees
- Survey and Appraisal Fees
- Agent Commissions
- House Removal Costs and More
Depending on the state, you can expect to pay some additional fees. And eventually, you’ll have to plan some repairs too. Sounds expensive, doesn’t it? That’s why it’s vital to make sure your finances are in good shape. Pay off all of your debts, or at least reduce them as much as possible. Build an emergency fund that will ideally last you at least 3 months. Review your expenses to make sure you will stay debt-free, or at least on top of anything left outstanding. This can include canceling unnecessary subscriptions, such as Netflix, and reducing the amount of money you spend on clothes, takeouts, and impulse purchases. Save money for initial expenses, like the down payment. There are plenty of down payment calculators that can help you with this task. Plan your expenses carefully, and you’ll enjoy the benefits of homeownership with minimal stress.
Select the right mortgage
The first step in getting a mortgage should be talking to a mortgage professional and getting a pre-approval. Do this before you start searching for a home. Pre-approval will often take time, and you don’t want to wait for it after you’ve found the house of your dreams. Additionally, the loan you qualify for may be lower than you initially expected, e.g. you expected to spend $300,000, but you only qualify for a $250,000 loan.
The next step is to choose the type of loan you’d like. There are multiple mortgage types you can select from, like FHA loans or conventional mortgages. Decide if you’d like to go for a 15-year or 30-year mortgage. Shorter loans have lower interest rates and allow you to build equity faster, but your monthly payments will be higher. Generally, it’s a better choice if you can afford it.
Pick the right location
It won’t matter how good your new house is if the neighborhood is bad. Decide whether you’d want to live close to the city or out in the suburbs. What does your ideal lifestyle look like in 5, 10, or even 15 years? Do you need a good school in the neighborhood? How’s the traffic in the area, how long will it take you to commute? Ask about crime rates – it’s essential to know that your family will be safe in your new home. Walk around the place on foot and visit it a few times during different times of the day.
Don’t scrimp on the home inspection
Do you know what’s worse than finding out the house you’d like to buy has a leaky roof or serious problems with pipes? Discovering all of this after you’ve already finalized the purchase! A home inspection will cost you around $400-600 to do, but it can save you thousands of dollars in the long run. Find a good specialist and try to attend the inspection personally, that way, you can see everything for yourself and ask questions right away.
Make an offer
By now, you should be ready to make an offer to the seller. You know how much you can afford based on the pre-approval. You know if the house is in good condition after the inspection (and if there are any faults, you can use them to negotiate a better price). If you’re not sure about what price to offer, you can always consult with your real estate agent. But a word of warning for you – it’s a sellers’ market out there. If you drive too hard of a bargain, you might lose the deal.
We hope these tips will make things a little less confusing and help you to finally become a happy homeowner. What are your concerns when it comes to homebuying? Share them in the comments below!
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