Is It Your First Time? Here Are Our Best Home Buying Tips

A house is likely to be the biggest purchase you ever make,
which can make home buying equally terrifying and thrilling.

If you’re preparing to
buy your first home
, take a deep breath, pour yourself a glass
of wine and read these tips for first-time home buyers. The
home-buying process is complicated and infuriating at times, but
you can figure it out if you follow some sensible guidelines.

Calculating Your Budget

Buying a new home is expensive — and not just because of the
down payment. Remember the following when calculating your
budget:

1. You may owe more than just a down payment at signing.

Depending on the contract you’ve worked out with the seller,
you may also be responsible for closing costs. All together, mine
totaled nearly $10,000.

And before you even get to signing, you will likely need to pay
for a home inspection, which averages about $315, though it depends
on the size of your home.

2. Don’t forget moving expenses.

Moving isn’t cheap, and I say that as someone who has had to
move six times in the last decade. Consider the cost of movers (or
a truck rental), new identification and vehicle registration, and
the cost of breaking your lease if you are moving mid-lease from a
rental.

If you’re counting on getting your security deposit back to
help with your first mortgage payments, make sure follow
these tips
when you prepare to move out.

3. Monthly mortgage payments cover more than payments on your home.

Not only will a good chunk of your monthly payment be put toward
interest (especially at first), but your monthly mortgage payment
will also include:

  • Homeowner’s insurance costs,
  • Property taxes
  • PMI (private mortgage insurance). If you cannot afford to put
    20% down on your home, you will likely be required to purchase
    PMI.

4. Plan for upkeep expenses.

When you rent, your landlord is responsible for replacing old
appliances, installing new roofs and windows, and generally fixing
anything that breaks. When you own your home and your water heater
stops working, you’re on your own.

The general rule of thumb is to budget 1% to 2% of your home
value each year for upkeep and maintenance.

Some years the number may be well below that, but in other years
of home ownership, expect to pay significantly more, like when you
need a new roof. That’s why it’s important to maintain your
emergency savings.

5. Grow your emergency savings before buying.

Experts agree that you should save up six months’ of expenses
for emergencies. (Easier said than done, I know.)

But still, when buying a house, don’t pour all of your savings
into your down payment. Leave some savings for unexpected expenses,
like a broken garage door or washing machine, as well as
emergencies not related to your home, like job loss or
hospitalization.

6. Determine what you’re comfortable spending each month.

Spend no more than three times your annual salary on a house,
but use that as a guideline. By no means do you have to
spend that much on a home.

If you have multiple jobs but don’t plan to keep them both
long-term, only consider one income when budgeting. Likewise, if
you or your partner plans to become a stay-at-home parent in the
future, do not consider that income when determining your price
range.

Saving for a Down Payment The front door of a house stands out between two flowering trees.

When purchasing a house, you’ll almost always need a down
payment. The size of the down payment will depend on the cost of
the home and the type of loan you secure (more on that in a bit),
but no matter what, it isn’t likely to be cheap.

Here are a few tips for saving for your down payment:

7. Reduce your expenses and increase your income.

If you’re not planning to buy a home immediately, reduce your
monthly expenses now and put the savings into a high-interest
online savings account.

For example, if you know you will begin your house hunt in
roughly a year, downgrade to a cheaper apartment and put the rent
savings away into your account.

We also have tips for
cutting costs on groceries
,
car insurance
and
utilities
, as well as advice on
several side gigs
you can get to earn some extra cash.

8. Shoot for 20% of the cost of the type of house you plan to buy.

Since you’ve already determined the maximum amount you would
spend on a house, aim to set aside 20% of that price for your down
payment. Doing so will earn you better rates and will keep you from
having to pay PMI.

PMI is generally required on any home loans when the buyer
puts down less than 20%.
My PMI is more than $200 a month, and
it is the most useless thing I have ever spent 200 bucks on —
every month.

9. If you can’t hit 20%, put as much down as you comfortably can.

Remember, though: leave some money in your emergency
savings.

10. Follow my rent rule.

While saving for my down payment, I invented a rent rule to help
me save. I calculated what my monthly mortgage payment would likely
be on my dream home, since I would need to grow comfortable with
paying that each month. Then I subtracted what I was currently
paying for rent each month.

I took the difference between the two and stashed that into
savings (on top of my regular savings) every month to put toward my
down payment. That move quickly grew my down payment savings by
several thousand dollars.

Choosing a Real Estate Agent and Getting a Loan A hand holds the key to house.

When buying my home, I had the benefit of having a realtor I
could trust — my partner’s mother. She obviously wanted to get
the best deal for us. Not everyone has that luxury.

A good way to start the search for a
real estate agent
is to contact several major mortgage brokers
and ask for their recommendations for agents. Call all of them and
interview them.

Likewise, to find a lending institution, you can call up major
real estate brokerages and ask them for mortgage lender
recommendations. Now call all of them up and interview them.
You’ll get an idea of who you like and the kinds of rates you can
get.

11. Don’t go it alone.

As fun as it can be to visit open houses and browse coastal
mansions you can never afford on Zillow (or is that just me?), a
real estate agent will be able to help you find properties suited
to your needs
, negotiate for a better deal and understand your
contract.

Agents have access to the multiple listing service (MLS) and can
show you homes you might otherwise never find.

Plus, your real estate agent should drive you to all homes,
which will save on fuel costs. That might sound cheap, but it’s a
true Penny Hoarder consideration.

12. Choose a buyer’s agent.

A buyer’s agent is a real estate agent who exclusively helps
buyers find homes. That means they do not ever list homes for
sale.

Buyer’s agents have no hidden agenda of trying to show you a
home that they or their brokerage have listed for sale.

Ask your real estate agent to confirm that he or she is a
buyer’s agent before signing with them. If you are still unsure,
you can
peruse the contract
for mention of a buyer’s agent agreement.
If there is no such terminology, assume this is not a true
buyer’s agent.

13. Ask potential real estate agents good questions.

Interview your agent as thoroughly as you would a babysitter for
your kid. A good real estate agent will be happy to answer your
questions.

Your questions should focus on their client satisfaction,
their familiarity with the area you are researching and how they
are paid.
The best real estate agents just split the seller’s
commission, meaning you don’t pay a cent.

14. Know the types of mortgage loans available to you.

Spend some time researching loan options online. Mortgage
options include conventional loans, FHA loans (Federal Housing
Administration), etc.

Each loan type has different requirements and qualifications.
And if you’re a veteran, a rural borrower or a soon-to-be doctor
graduating but plagued with
student loan debt
, your status could earn you a less common
loan.

15. Don’t just go with the lender your real estate agent
recommends.

Your agent may have an agreement with a lender, so it’s in
their best interest to help each other make more money off you.

Instead, research loans with your own bank or credit union, and
don’t forget the list of mortgage lenders you got during your
initial research.

16. Compare mortgage rates.

Go with the lowest interest rate you can find. The difference
between 4.00% and 4.25% might not sound like a lot, but on a
$200,000 home over 30 years, it makes a huge difference.

On this $200,000 home, a 4.00% rate equates to $343,739 for the
total cost of the mortgage. A 4.25% rate (just 0.25% higher) bumps
the total cost to $354,197, for a difference of more than
$10,000.

17. Don’t open new lines of credit.

Your credit score plays an important factor in securing a loan.
It’s a red flag to lenders if you open a new line of credit, even
if they’ve already committed to the loan and you’re a day away
from signing.

18. Get pre-approved.

Before visiting your first home, ask your chosen lender for a
pre-approval letter. This will let you know how much the lender is
willing to lend you (but remember, you do not have to buy at
the top of that limit) and will let potential sellers know how
serious you are when you make an offer.

What to Look for in a Home A mirror on a wall by a bathroom reflects the adjoining bedroom.

You can easily and cheaply change a lot about a home. If
you’re not crazy about the walls, you can paint them. If the
carpet is hideous, you might be able to rip it up and restore the
original hardwood floors for under $1,000. (We did ours for just
$700.)

However, there are certain things that can’t be changed or are
much more expensive to resolve.

19. Check these things when touring a home.

Roof and windows: When was the roof last done? How about
the windows? Are they good windows that will keep utility costs
down?

Foundation: Are there foundation issues with the home
that could necessitate expensive repairs?

Appliances: How soon will appliances need to be
replaced?

20. Another thing to consider: location, location, location.

You will likely be living in the area for at least five or 10
years, if not the rest of your life. Make sure you are satisfied
with the neighborhood, including access to work, groceries,
restaurants and hospitals; the level of traffic; the crime rate;
and the typical noise.

Visit the neighborhood at different times of the day and
different days of the week, and pay attention to how many cars
drive through, if there are loud dogs barking, etc.

It’s also a good idea to drive to and from your work during
rush hour to see how unbearable the commute is.

21. Consider your wants and needs.

As you start shopping for a house, you should consider your
wants and needs — and how they might change in just a few years.
Some important things to think about include:

  • Is the house close to your job? Do you plan to work in the same
    area in a few years, or are you hoping to work somewhere
    else?
  • Are you planning to start a family? Will this house be big
    enough? Are there good schools in the area?
  • Do you plan to rescue dogs? Is the yard big enough? Is it
    fenced in?
  • Do you really want a pool? Can you afford the upkeep and
    higher insurance?

Getting an Inspection

You should always get a home inspection before buying a home. In
some states, home inspections happen before you make the offer. In
other states, they happen after offer acceptance, but the contract
is contingent upon the inspection. If you’re not happy with the
findings, you can still back out of the sale.

22. Don’t cut costs on inspections.

Your cousin may be a plumber, but that doesn’t mean she is
qualified to do an actual home inspection. Hire someone who
regularly does inspections and make sure they are thorough.

You can check resources like Angie’s List, HomeAdvisor and
Yelp — and ask about their
certifications
.

23. Accompany the home inspector.

You are allowed to be at the inspection. You can direct the home
inspector to focus on an area that has you worried, and you can ask
questions as you go. Ask about signs of potential water damage,
the age of appliances like the furnace and A/C and any other areas
that might catch your attention.

A truly good inspector, however, should be thorough enough to
answer any questions you have before you even ask.

24. Check the uncommon things.

Not every inspector tests for mold, radon, lead and pests. Ask
before hiring, and only pay for an inspector who will check for
these crucial red flags. Note: This will likely make your home
inspection more expensive.

Making an Offer

If you found a reliable buyer’s agent, they will help you with
the negotiating. However, what you offer for a house is ultimately
up to you.

25. Negotiate like a pro.

Consider some of the following when making an offer on the
house:

  • If the house has been on the market for a while or you think
    the seller is asking too much, offer less than what you are
    ultimately willing to pay. Beware: you risk losing the house if you
    lowball the seller and they do not negotiate.
  • Specify what repairs you want to be made in your offer, and see
    if the seller bites.
  • If you want to upgrade something expensive, like the kitchen
    cabinetry or the windows, ask the seller to fund it, and you can
    offer to pay that much more on the house. That way, your expenses
    to update the house aren’t out of pocket but are worked into your
    mortgage.
  • Everything is negotiable, even closing costs.

As a first-time home buyer, the entire process of buying a home
can be intimidating. You’ll likely lose some sleep (and maybe
some hairs if you pull too tightly), and at some point you’ll
probably reconsider the whole idea and Google “how to live off
the grid in a tent.”

But if you persist, ask good questions and rely on family and
friends for support, you’ll get through it. And soon enough,
you’ll have a place to call your own.

Timothy Moore is a writer and editor based in Germantown,
Ohio. He, his partner, and their two dogs love their home together,
but they are less enthusiastic when you ask them about their
mortgage.

This was originally published on
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Source: FS – All-News2-Economy
Is It Your First Time? Here Are Our Best Home Buying Tips