This is it: You’re ready for the next big step in life and are buying your first home. While it might seem as easy as viewing the houses your Realtor shows you and picking the one you like best, remember you’ll most likely be spending at least a few years living there.
You want to be sure there are no regrets, because once the papers are signed and you close on the house, there’s no turning back.
Here are some things to keep in mind before committing yourself to a home purchase:
1. Get Your Financing
No matter how much money you make or how good you think your credit is, get pre-approval from your lending institution before you put in an offer on a house. Your bank will say what amount it’s willing to back you for, which will translate into how much you can spend.
Typically, banks like to make housing decisions based on around 28 percent of your gross income, which means your mortgage, property taxes, and insurance should total at most about a quarter of your income before taxes and social security has been taken out. They also look at outstanding debt such as credit cards and student loans, which should be less than about a third of your gross income.
2. Crunch the Numbers
Once you’re preapproved, figure out your budget. Just because the bank says they’ll lend you a certain amount of money for a mortgage doesn’t mean you can afford the payments! In this case, you’ll want to know your Debt-to-Income Ratio before proceeding.
Use a good mortgage payment calculator, and remember to factor in extras such as property taxes, insurance, and private mortgage insurance (PMI). Condos and some neighborhoods also have a Home Owners Association (HOA) fee tacked on to the regular mortgage.
3. Check the Utilities
When you’ve found the home you love and think you can afford, don’t jump the gun yet. Ask the sellers for copies of the past year’s heating and cooling bills, so you’re not blindsided by huge utility costs. If they don’t have copies, they can download one from their utility provider. Ask how old the furnace, hot water heater, and central air unit are. If appliances are included, add them to the list.
4. Look for Potential Problems
Ask for photos of the exterior of the house during different times of the year, and look for signs of standing water, erosion, and other things that might affect the home such as trees growing close to the foundation. Do a thorough inspection; look for cracks in the foundation as well as signs of repairs, and check under the house or in the basement for damp areas and signs of past standing water. Make sure everything is in working order. If the A/C is off, turn it on just to be sure it functions properly. Try opening the garage door to make sure it doesn’t need any expensive maintenance or repair.
5. Call a Pro
If you’re still convinced this is the place for you to set down roots, ask for a home inspection. A professional can save you thousands of dollars in costly repairs by identifying hidden problems such as attic leaks and a faulty roof. You may be able to lower your bid on the home if they find an easily repaired problem you don’t mind dealing with after you buy.
6. Find Comparisons
Do some research without your Realtor. Check a few real estate websites and see how much comparable homes are selling for, as well as those that have sold in the recent past. See how long the houses have been on the market, because you may be able to lower your bid. Look for comments from other home buyers, and check the neighborhood ratings.
7. Check the ‘Hood
Drive the neighborhood at several different times of the day and make sure it’s an area you’ll enjoy living in. Look for vacant houses and blight, but also for signs it matches your lifestyle.
For instance, don’t buy a house near a school if you hate kids. But if you plan on having any while you live there, then check on schools, playgrounds, and other family-friendly amenities. Find the nearest grocery and department stores, and decide if they’re close enough and in a safe area in case you need to make a late-night run.
8. Visit the Cops
Stop in the local police station and ask them for statistics on neighborhood crime. If they aren’t willing to take the time to help, look for an online source listing the type of crimes and the frequency of police calls in the area to get a good feel for the overall safety of your prospective home.
Park near the house in the evening and take a walk for a few blocks so you get an idea of your potential neighbors in their leisure hours. Look for kids playing, people walking or jogging, and whether people appear to be interacting.
9. Do the Drive
Check how far the house is to your place of employment and make the drive during the time you’ll be in traffic. Decide if you can live with the route five or six days a week, and if it’s farther than your current commute, remember to add the extra cost for more gas to your budget. Remember to add wear and tear on your vehicle, and check with your auto insurance company to see if your rates will go up in the new neighborhood.
10. Meet the Neighbors
Lastly, knock on a few doors and meet your prospective neighbors! Ask them to tell you three things they love about living there, and three things they wish were different. While they’re talking look around their yard and home, and check whether they’re well kept or neglected. You’ll get a better idea of the neighborhood as a whole, as well as meeting the people you’ll be living near for the next decade—or few!
One of the best things about buying a home is that properties tend to appreciate in value, especially over the long term. This is encouraging for first time buyers, because it means you can build your net worth by increasing your home equity (the value of the home minus the amount you owe on the mortgage). To quickly assess how much your home will be worth in future, check out this simple home appreciation calculator.
Although buying your first home is one of the biggest life steps you’ll take, don’t jump too fast on a great deal. Take a few deep breaths, follow these steps, and do your homework before you make a 30 year commitment.
Then, when you finally find the perfect house, celebrate. Congratulations on becoming a new home owner!