The top 10 things you need to know when buying a home.
- Don't buy if you're not going to stay awhile (unless you want to be a landlord).
- If you're not ready to remain in one place for at least a few years, then owning is probably not for you, at least not yet. With the transaction costs of buying and selling a home, you may end up losing money if you sell any sooner - even in a rising market and even when working with a non-traditional discount real estate firm. An alternate strategy is to buy a home with the intention of eventually converting it to an income-producing rental property, giving you more flexibility to move if needed. You'll need to be ok with being a landlord, which isn't exactly a hobby for everyone.
- Start by understanding your credit.
- Since the odds are you will most likely need to get a mortgage to buy a house, you must make sure your credit history is as clean as possible. Many credit reports have errors. Don't let errors surprise you. A few months before you start house hunting, get copies of your credit report. Make sure the facts are correct, and fix any problems you discover.
- The Fair Credit Reporting Act (FCRA) requires each of the nationwide credit reporting companies — Equifax, Experian, and TransUnion — to provide you with a free copy of your credit report, at your request, once every 12 months. To get your report at no cost, visit www.annualcreditreport.com or call 1-877-322-8228.
- Aim for a home you can really afford.
- The rule of thumb is that you can buy housing that runs about two-and-one-half times your annual salary. There are many calculators available online to get a better handle on how your income, debts, and expenses affect what you can afford. Many sites that help you manage your finances can be very helpful in estimating your real day-to-day expenses. We recommend Mint.com and Levelmoney.com to better understand your current financial situation. Both have apps available in Android and iOS.
- You will need some money. But not necessarily the usual 20 percent down payment.
- There are a variety of public and private lenders who, if you qualify, offer low-interest mortgages that require a small down payment. Depending on your mortgage (and many other factors) you might be able use "gift funds" to apply towards your down payment.
- Saving is a challenge, but there are a number ways to do it and make it fun. Savedplus has a cool app that lets you save automatically and easily. It's available on both Android and Apple devices.
- Really, really, REALLY think about what you want. And take your time.
- Don't rush this. It's a big deal to buy a home. It is NORMAL to take your time. The average buyer sees 14 homes prior to purchasing.
- Always remember as you look- buying a home is about tradeoffs. You may get the location and home style you want… but at a price you can't afford. Or you might get the house, but not the location. Finding the right home takes time and effort. By taking your time and thinking deeply about what you want, you'll be able to feel good about your decision.
- Get professional help.
- Even though the Internet gives buyers unprecedented access to home listings, most new buyers (and many more experienced ones) are better off using a professional real estate agent. Buyer agents are actually paid by the home seller, not by the buyer, but some people are still tempted to try and do it without an agent. This usually works better in theory than in the real world.
- Did you that the vast majority (over 90%) of home sellers have an agent when selling their home? Home sellers hire agents that are compensated to sell their home and negotiate on their behalf. Without hiring your own representation, you will likely end up negotiating with a person who negotiates for a living. It doesn't always work out well. (Although you might not realize it. It's not like the other side is going to advertise it to you.)
- Choose carefully between points and rate.
- When picking a mortgage, you usually have the option of paying additional points (money paid up front to the mortgage lender) in exchange for a lower interest rate. If you stay in the house for a long time -- say three to five years or more -- it's usually a better deal to buy down your rate with points. The lower interest rate will save you more in the long run.
- Before house hunting, get pre-approved.
- Getting pre-approved will save you the grief of looking at houses you can't afford and put you in a better position to make a serious offer when you do find the right house. Not to be confused with pre-qualification, which is based on a cursory review of your finances, pre-approval from a lender is based on your actual income, debt and credit history. There is a big difference between pre-qualification and pre-approval. We strongly recommend the pre-approvals for all of our clients.
- Do your homework before bidding.
- Your opening offer should be based on the sales trends of similar homes in the neighborhood. You should take into account how much you really want this home, and how long it took you to find it. We provide every buyer with highly-detailed summaries of nearby property sales, general market data, a property comparison analysis, and detailed recommendations prior to making an offer. Make your offer only after reviewing all the data you need to make a well-informed decision.
- Hire a home inspector.
- Home inspectors with experience and training are critical. They can help you avoid costly problems later down the road. Make sure your inspector is a member of the National Association of Home Inspectors and that they have experience in doing home inspections in the area where you are buying.
- Generally, your inspector should point out potential problems that could require costly repairs down the road. Make sure to discuss these in detail with your agent after the inspection is complete. Get a detailed inspection report, in writing, of their findings, and make sure they take photographs during the inspection. Any issues found in the home could be an opportunity for your re-negotiate with the home seller and your agent should help make recommendations about how to approach that negotiation and guide you through it.
Don't rush this. It's a big deal to buy a home.
Learn more about buying a home in our Information Library.