One may be wondering with such low-interest rates, why aren’t more people buying than renting. According to The New York Times “Record-high home prices, record-low inventory and tightened borrowing criteria are being exacerbated by the pandemic.”
While buying will cost you more upfront, it’s an investment and one that in the long run, is more affordable than renting. When comparing the two, renting is of course easier while purchasing a house is labor-intensive and exhausting.
Time magazine partner NextAdvisor says that “40% of first-time homebuyers said it was the most stressful event of their entire lives.” I get that. It’s nerve-wracking, especially if it’s your first home. That’s why it’s important to consider each step in shopping for a home very carefully.
Organize Your Finances
Start saving up for your home now. Yes, I mean as soon as you finish reading this. Even if it’s change that fell out of your pocket, save it. You’d be amazed at how much it can add up to. Did you know if you start with one penny and double it every day for 27 days, you’ll have more than a million bucks? Yep! Crazy, right? So whether it’s a penny or $100, it’s time to get organized and figure out a plan to save for your dream house.
The process of buying a home is very complex and each step involves money.
- Down payment.
- Closing costs
- Home inspections
- Moving expenses
Living beyond your means isn’t smart. Figure out what you can afford and be reasonable. The first house you buy may not be the last house you buy and if you envisioned yourself in a fancy mansion, it could happen. However, starting with a more manageable dream house is probably a better idea.
Remember that credit score you didn’t pay enough attention to? Those late and missed credit card payments are back with a vengeance and your credit score plays a huge part in your home purchase. The better your credit is, the more options you’ll have for a down payment and financing. While there are ways for people with subpar credit histories to buy homes, they always involve more costs. Figure out how to increase the health of that credit, sooner than later.
Learn Your Mortgage Options
If you have a multi-million dollar stash of cash hidden somewhere, share the wealth, that is after you pay for your house. With all that dough, you won’t need a loan. Now, if you’re like most of us and your million dollar stash only exists on your Monopoly board, you’ll be taking out that loan to buy your home, which is referred to as the mortgage. You’ll be paying this loan back incrementally for several years and by several I mean, possibly 15 or 30. You don’t have to be a slave to your mortgage though.
There are several mortgage options to think about.
- Fixed-rate mortgages
- Your mortgage interest rate and total monthly payment of principal and interest will not change for the entire term of the loan.
- Adjustable-rate Mortgage (ARM)
- Your monthly payment will increase or decrease if the index rate goes up or down.
- Loans insured by the federal government such as FHA (Federal Housing Administration)
- Good for those with limited income and funds for a down payment.
- VA (Department of Veterans Affairs) offered by pre-approved lenders.
- You must be a current or former member of the U.S. armed forces or the current or surviving spouse of one.
- Every U.S. state has special programs for first-time homebuyers.
- Includes low or zero-down loans, down payment assistance, and closing cost grants.
The mortgage industry has been affected by COVID, which is no shocker. What or who hasn’t? Some lenders have created tougher criteria that buyers need to meet to qualify. Due to the loss in employment, lending someone money is definitely higher-risk than normal.
With even more complications due to the pandemic, I recommend getting pre-approved for a loan. This speeds up the process, gives you an advantage over others, and sends the message you’re a serious buyer. According to Investopedia.com, you’ll need proof of assets and income, good credit, employment verification, and other documentation to be pre-approved for a mortgage
Find the Best Real Estate Agent
A real estate agent by your side who you can trust throughout the home-buying process can make a big difference. A great agent will pay devoted attention to your interests and while they may be quite fond of you, they’re required to do so because they have a “fiduciary responsibility.”
Your real estate agent will scour the market for the kind of home you want and can afford. They’ll help you find open houses, explore all your options, and be a guiding hand for finding a lender, getting data on neighborhoods, setting up viewings, negotiating, and of course, closing the deal.
There are plenty of real estate agents out there, so don’t settle for the first realtor you come across. Talk to several agents, ask for references and referrals from their recent clients, and be sure to mention you’re a first-time homebuyer. Why? Some realtors specialize in that department.
Get a Home Inspection (or Two)
Once the seller accepts your offer, you’ll need to have your new home inspected. Do not miss this step. I repeat, DO NOT MISS THIS STEP. Remember The Money Pit with Tom Hanks and Shelly Long from 1986? Yeah, you don’t want to mimic that situation.
Home inspectors are disinterested parties who will take a thorough, unbiased look at your new property to verify its condition and search for issues. They look at plumbing, insulation, ventilation, electrical connections, and exterior structure. They’re trained to detect leaking pipes and septic tanks, bad water heating, loose roof shingles, structural damage, uneven foundations, faulty electrical wiring, and so much more. Their job is to find all the surprises before you commit.
There are a few important items that standard home inspections don’t cover, like pests and termites, asbestos, lead paint, mold, and radon gas leaks. Hire the right professionals to check these off your list.
Get Home Insurance
Home insurance protects your financial investment when problems arise in your home. Depending on the package you put together, home insurance can cover costly repairs, damage, fires, theft, and more. It can also protect you if a visitor gets injured while they’re at your home. It may also cover you for accidental damage you cause to another person’s property.
Insurance isn’t a suggestion, but a necessity. Lenders require you to buy home insurance before your loan is approved as it protects everyone’s interest.
- Know what you need your home insurance policy to cover.
- Know what deductible and coverage limits you can afford.
- Standard policies cover both the structure of your home and your possessions, however, they might not cover certain events or natural disasters.
- Take time to read the fine print in the policies you’re shopping for, another area your real estate agent can be helpful with.
When you find that perfect first home, it can be so exciting. So much so, you may rush through the process for fear of losing the deal. Going through the home buying process the correct way will save you money, many frustrations, and will avoid having to commit to the money pit.
Find a realtor you can trust, understand your mortgage options, ensure your credit score is where it should be, never forgo an inspection, and protect yourself and others with home insurance.
Happy home hunting!
Here’s to the Wellness of Your Wallet!