9 Tips on Purchasing and Financing Your New Home
By Kerry Jackson, Lead Advisor, Fish and Associates
One of the most common goals we are approached with by our millennial clients is buying their first home. The decisions surrounding this milestone purchase can be extensive and overwhelming. Below are 9 quick tips on buying your first house that you should know and be thinking about in advance.
- Do you have a down payment? Putting at least 20% down is ideal. It avoids the need to purchase mortgage insurance and communicates to the seller that your finances are strong. If you don’t have 20%, there are programs for first-time buyers that allow you to put down as little as 3-5%, but expect to pay mortgage insurance. If savings is an issue, start today! Bonuses, tax refunds, and automatic drafts can be socked away. And family gifts can go toward your down payment.
- Time to budget. If you are a first-time buyer, how much can you reasonably afford each month for your house payment? Many first-time buyers forget to factor in property insurance, homeowners insurance, and private mortgage insurance, if required. If you are living with Mom and Dad, keep in mind the added cost for utilities. Further, you may be paying fees for a homeowners association, so please keep the added costs in mind.
- Secure the services of an experienced real estate agent. A good agent is worth his or her weight in gold. Typically, the seller pays the commission, so it behooves you to enlist the help of an experienced professional. An experienced agent knows the ins and outs of the market, how to best handle the many details you are sure to encounter, and how to negotiate with the seller.
- Pre-qualified vs. pre-approved. At a minimum, get pre-qualified. It only takes a moment and it tells the seller your credit is solid and your income is adequate to handle the mortgage payments. In some areas, today’s market is extremely hot, and multiple offers aren’t uncommon. If this is the case, your agent may recommend you get pre-approved with a lender before submitting an offer. The process is much more detailed, and will require tax returns, W-2s, recent bank statements, paystubs, and more. But once you are pre-approved, it enhances your position with the seller, as it communicates that you are financially solid, almost eliminating the odds your financials will sink the deal.
- Location, location, location. What part of town do you want to live in? Whether you have kids or not, the school district is important and can bolster values down the road, since families buy in desirable school districts. What about your daily commute? Can you handle 45 minutes or an hour in traffic each day? What are the amenities you require in terms of parks, recreation, restaurants, shopping and so on? Much goes into targeting an ideal neighborhood.
- Don’t sweat the small stuff. You love the neighborhood, the floorplan looks great, the schools are top-notch, but you don’t like xyz. Remember, paint can be changed, lights can be replaced, and the powder room vanity can be updated. Besides, the personal touches you add will make the home feel like it’s yours.
- The myth of the dream house. Be prepared to make compromises. One home will have just the right layout but the kitchen will be too dark. Another will back on to a park or have a beautiful view of the city, but the yard won’t be big enough. What do you want in a home? What’s most important? What projects can you undertake? Prioritize!
- Credit reports. This is important, so listen up. You’ve signed a contract but haven’t closed on the house. Don’t quit your job! And stay away from purchases that require new debt, like an auto loan! In either case, you may completely ruin your debt-to-income ratio, and your loan will fall through. Roughly translated: You won’t get the house.
- Get a thorough home inspection. In very hot markets, some buyers are willing to waive a home inspection to entice a seller who has received multiple offers. While inspections have limitations, you are rolling the dice if you forgo a comprehensive review. Attend the inspection and ask questions. One more thing: minor cosmetic issues that could surface may or may not be worth bringing to the seller’s attention in a very tight market. Do you really want to lose a house over a small issue? Again, an experienced agent can guide you.
When you are ready to pull the trigger and start planning for your first house, give us a call and we will show you how a partnership with our firm can provide you confidence as you move through this process.
Posted on August 11th, 2017 in finance.