Be a ‘Boy Scout’ and be prepared when you buy your next home.
You have been paying off debts, watching your credit score rise, and finally have enough money to cover the down payment. You might even have been prequalified for your loan at this point. But does that mean you are truly ready to make what might be the largest investment of your life?
Let’s back up a minute and talk analogies. Say you want to buy a pet. The initial monetary commitment to buy a cat or dog is one thing, but the spending doesn’t stop there. You needed to buy accessories, food, bedding and so on. An emergency that requires veterinary care might happen, or you may have to replace the carpet that ‘Fluffy’ has been using as a scratching post.
There’s more to buying…than simply having a down payment.
It quickly becomes apparent that there are extra costs associated with the initial purchase – and that’s just to buy a pet. Here are some considerations before you buy a house.
1. Figure out what to spend:
Don’t necessarily buy what you can afford. You need to plan for mandatory fees, such as property taxes, homeowners insurance, association dues and possibly (PMI) private mortgage insurance. These fees are not necessarily static; they can go up, and you need to be prepared to pay them. Try to keep your mortgage payments to no more than 28% of your salary so that you can handle all the extras.
2. Research available programs:
Check with your local lender (or contact me for a great recommendation) for local and state programs you may qualify for. Some programs allow down payment assistance and seller or lender credits that can be applied to your closing costs.
3. Scout out the neighborhood:
Choose a neighborhood that matches your lifestyle. If you have kids, pick a home in a good school district. If you want to walk to restaurants and shopping, you typically need to be in the historical part of a neighborhood. Modern amenities a must-have? you may need to consider new subdivisions and perhaps live farther from the ‘typical city services.
Listen to the neighbors…do you hear barking dogs and screaming kids? They’re staying.
4. Understand the art of negotiating:
Some sellers might take lower than asking if they believe you will treasure the house as much as they did.
One recent buyer came in $2,000 below the asking price but insisted that they wanted to keep the statue of Mary on the side of the home. Sold! The seller rejected a higher offer from another buyer who asked for the statue to be removed.
5. Budget for furniture:
Unless you are happy to picnic every night on a blanket spread out on the floor – and with the neighbors watching through your bare windows – you will need to buy furniture and simple necessities. The cost is nothing to sneeze at; real estate professionals estimate it could run 20% of the cost of the house. Many first-time buyers spend a minimum of $5,000 when they move into their new home. The last thing you want is to start life as a new homeowner with a high credit card debt.
6. Look into home warranty plans:
Buyers should always purchase a home warranty…or negotiate one in to the sales contract. It’s like having a bumper-to-bumper warranty on your car.
Home warranties, which are separate from homeowners insurance and purchased from home warranty companies, usually cost around $350 annually and cover the heating system, air conditioning, water heater, appliances and more. I would also recommend each homeowner prepares a ‘home fund’ by putting away $100 each month as soon as they move in. This fund can be used to pay repairs after the warranty runs out.
7. Decide how long you will stay:
Unless you know you are buying your dream home, consider the cost of moving. If you don’t stay in the home for at least 5 years, you probably will not have enough equity built up to cover fees such as closing costs and a home inspection.
For more information about the home buying process or to have a conversation with me about your real estate situation, please contact me.