Purchasing your first home can seem daunting but it is one of the best financial moves you can make if you do it correctly. I’ve been able to amass a sizeable nest egg, quit my full-time job, and travel the world due to my flipping and rental projects. If I hadn’t made the leap to homeownership, I’d definitely not be where I am today.
Read on to learn 7 of the most important tips for buying your first home.
Location is King
While many things have changed in the real estate industry, this adage remains: Location, location, location. Ensure you’ve done your research before choosing your target location as the wrong neighborhood can definitely have a negative affect on your financial bottom line. This is especially true when purchasing your first home. I recommend at least 4 visits to the area before even setting foot inside a house to view. These 4 visits should include:
- Weeknight visit
- Weekday visit
- Weekend daytime visit
- Weekend nighttime visit
Pay attention to what you’re seeing and hearing with each specific visit. Is it quiet? Do you see neighbors out & about? Would you feel safe walking alone in the area? Ask yourself the hard questions and don’t sugarcoat what you’re experiencing. Make sure to speak to at least a few of the neighbors as well.
Use a Realtor
If you’re about to purchase your first home, this is a no-brainer. Using a licensed, knowledgeable real estate agent is FREE to you as a buyer. That’s right; your agent’s commission is paid by the seller! There may be a transaction fee that most every brokerage charges to buyers and sellers but I’ve found that it’s pretty easy to at least reduce that sum with a bit of friendly negotiation when you begin working with your Realtor. Expect to pay no more than $500, if anything.
More than finding you the house of your dreams, your Realtor is an invaluable source for neighborhood and market data. Seek out someone who has worked in the area you’re searching in, and make sure they give you a list of addresses of their recently closed homes that verify their claim. Remember the job of the Realtor also entails structuring your offer so it has the best chance of being accepted by the seller. In most markets today, gone are the days of lowball offers. In my local market, most homes have intense bidding wars and end up selling for over the original asking price. Don’t shortchange yourself by going it alone–rely on the expertise of your Realtor to ensure that house does in fact become your dream home.
Organize Your Finances First
Before you narrow down your preferred location or contact a Realtor, make sure you’re financially ready to purchase your first home. Seek out mortgage brokers who are familiar with people in your situation (whatever that may be). Don’t just meet with one broker–interview at least a handful to make sure you’re fully educated regarding your options. You should have already saved up a decent downpayment, cleared up any lingering credit issues, and set a strict budget for what you can afford.
If you aren’t ready to buy, consider finding a broker who offers free credit counseling if that’s your area of need. For no fee to you, these professionals will give you advice to tailor your debt payoff and savings efforts so your credit report will be in tip-top shape when it comes time to buy. When you are ready, the pre-approval letter is your buyer’s gold. Most Realtors won’t even meet with you before you have this in place, so take the time and make the effort to secure your pre-approval.
Above all, remember the amount you’ve been pre-approved for isn’t necessarily what you can afford. Do your budget, work the numbers, and re-work until you have a solid number. Don’t be swayed with fancy financial formulas when it comes time to decide what to spend. Know your number in advance, be strict with your Realtor about what you can afford, and be thankful you won’t end up with a mortgage that eats up all of your money.
Do Not Empty Your Bank Account
Inevitably, there will be unforeseen expenses when you purchase your first home. There isn’t a landlord or property management company to field your repair requests, so that work–and those dollars–will now be your responsibility. Set yourself up for homeownership success by keeping enough in your savings account to ride out whatever roofing, plumbing, or electrical storm may come your way.
Utilities, maintenance, property taxes, and insurance are all after-sale expenses that virtually never cease. Work these into your budget so you’re well-prepared. Also, don’t forget about random, one-off expenses such as moving into your new home, any new furniture you made need, and even the cost of re-stocking the fridge.
Know the Rules
Considering a condo or apartment in an established community? Looking at a home in a neighborhood that has an association? Pay particular attention to the HOA rules, regulations, and fees. Some HOAs have strict rules regarding pets, common area usage, and rental rules. If you’re thinking of turning your first home into an eventual rental property, make sure there isn’t an HOA rule that would impede your plan. Finally, take a hard look at the association’s financials.
If you do choose to purchase your first home in a place where there is an HOA, make sure there is plenty of money in the reserves and that the overall finances of the association are sound. Otherwise, you may end up being on the hook for some very expensive assessments down the line. Remember, in a shared community, everyone pays for certain expenses. From a new pool to a new roof, safeguard your finances by ensuring the HOA is on top of theirs.
Keep Sight of What’s Important
Before you start to look at houses, make a list of realistic expectations. No house will have 100% of what you’re looking for unless you build a custom home. Shooting for achieving at least 85% of your desired features is a great benchmark. And while you’re out there, keep in mind what really matters. That ugly paint color in the bathroom? It can be changed for less than $50. Those formica countertops? They are easy to replace, too. However, the lack of a fourth bedroom or a second bathroom isn’t so easy to change. A disaster of a floor plan can mean big bucks to renovate.
Before you’re out there viewing homes, know what you’d be willing to trade and/or sacrifice. If you are adamant about your commute time, don’t go too far out for the bigger house. But if you’re set on living in the mountains, consider living in a ski condo if the cost of a single family home is out of your reach. Additionally, don’t forget to consider contingencies. When buying your first home, it is imperative you have a home inspection. But perhaps you waive the sewer cam portion of the inspection list. Or maybe you forgo asking for a home warranty to make your offer more competitive. Work with your Realtor to craft an offer that makes sense given the house, the market, and the competition.
Get Ready to Move
Good houses at good prices tend to sell quickly, especially when the seller is realistic and ready to glide through the process. While I’m not advocating a rash decision, I do believe in moving quickly when you find The One. Think more like 1-2 days to decide to make an offer versus 1-2 weeks. As I mentioned above, in my local market, houses sell within hours so be prepared to write an offer almost immediately if your market is the same. This is why it’s crucial to have your pre-approval, neighborhood research Realtor, mortgage broker, and list of must-haves in place before looking at houses.
What advice would you give to someone looking to buy their first home?
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