What You Need To Know When Buying A House
Holly Shuffett11-minute read
October 19, 2021
Ask any homeowner about their experience buying their first house, and they’ll probably share a few amusing stories about lessons they learned the hard way. If you’re buying a home for the first time, you won’t be able to draw from past home buying experiences to know what to expect and how to prepare. Instead of learning the hard way too, check out these 10 important things to know before buying a home, and you’ll be purchasing like a pro in no time.
What To Know Before Buying A House
Let’s look at what you need to know before you start your home search. Keeping these things in mind will make the process smoother and can help you find the right home sooner.
1. How Much You Can Afford
Before anything else, you need to know if you’re capable of buying a home without breaking the bank. It isn’t just that you’re tired of your current living situation and want your own place. You need to make sure you’re financially ready as well.
Whether you get a mortgage or not, there are a few costs associated with buying a home. If you plan to buy your home without a mortgage, you’ll need to save up enough money for, well, the full purchase price of the home. If you’re like most people in the United States and plan to use a mortgage to buy your home, you’ll need to save up enough money for a down payment and closing costs.
Your required down payment will depend on the type of loan you get. For example, the down payment for a conventional 30-year fixed is 3%. For an FHA loan, it’s around 3.5%. Of course, you can always make a larger down payment, which is what you’ll want to do if you can. That’s because the larger the down payment, the more you’ll save in interest and the more equity you’ll have in the home from the get-go. If you put down 20% or more, you’ll also avoid having to pay private mortgage insurance (PMI).
You also need to take a good look at your savings and figure out whether you’re prepared to handle closing costs – the fees associated with getting your loan. These may include application, appraisal, origination and underwriting fees, to name a few. While the closing costs vary, you can expect to pay around 3% – 6% of the purchase price. These are costs you’ll need to pay upfront, so you need to have that money available when you buy a home.
It’s important to keep in mind that homeownership is not a one-time fee. Not only will you have to pay for the home, but you’ll also have to pay taxes, insurance and maintenance costs. To make sure you’re financially ready to buy a home, ask yourself some questions to better understand your financial situation. Are you drowning in debt? You may not be able to get a mortgage. And if you do get a mortgage, the loan will only add to the debt you already have. Are you living paycheck to paycheck? You may not be able to afford a monthly mortgage payment at this time. If you’re struggling financially, a home will only add to the problem. Get your finances back on track first, then come back to buying a home when you’re in a better position.
Whether you’re wondering how to assess if you’re financially equipped to buy a house or you simply want some help visualizing what you can afford, try using our home affordability calculator to gain some insight into how much money would be best for you to have on hand, in addition to learning more about the price of properties in a particular area.
2. How To Choose The Right Lender For You
When looking for a mortgage lender, you’ll quickly find an abundance of options all keen on earning your business and your loan application. To avoid feeling overwhelmed and best ward off analysis paralysis, keep in mind that not all lenders are the same – the same way you’d want to find a unique home that best fits you and your needs, you should shop around and find a lender who works with you and will be there for all of your mortgage questions.
The most important thing to look for when finding a lender is getting the best rate to save the most money, but other factors like loan terms, down payment requirements, property insurance and closing fees also vary offer to offer. You’ll want to compare these items in order to find a lender that best fits you and your financial situation.
3. How To Find A Real Estate Agent You Trust
Working with an experienced real estate agent is a great way to cut out some of the chaos and confusion that accompanies purchasing your first home. Not only will local real estate agents be helpful in finding you your dream home, but they’ll also have the real estate know-how to assess what are reasonable asking prices and how to negotiate with sellers – which can put some cash back in your wallet.
To make the most of your real estate agent’s expertise, you’ll want to have a solid working relationship filled with trust and open communication. Don’t hesitate to fill them in on all your wants and needs regarding the house, neighborhood and area. If your knowledge of the real estate market is lacking, having a good real estate agent can help you build a realistic budget and avoid feeling overwhelmed by the numbers.
The most reliable way to find a real estate you trust is simply by asking your loved ones for recommendations – your friends and family will have your best interests at heart, and having that history will set a baseline of trust between you and your agent. If your recommendations aren’t working out, don’t be afraid to utilize the internet to its full potential: Snoop around on some local real estate agents’ websites and social media to gain a better sense of their personality and whether you think you’d be compatible. Lastly, keep in mind that you’re not married to every agent you talk to, so reach out or set up a few interviews. Meeting face to face is a great way to find out their knowledge of the area and gauge your working chemistry.
Things To Know When Buying A House
1. Contracts Can Be Negotiated
Many people may pass up the opportunity to live in their dream home due to it seeming so out of reach, but that just might not be the case. While it’s important to have a budget and avoid going overboard with your must-have list, keep in mind that the asking price is not always final.
If you’re on the verge of settling, remember that negotiations play a huge role in saving money or getting more bang for your buck during the home buying process. So even if you’re hesitant to step on any toes or you’re afraid of getting caught up in a bidding war, to get the best possible deal on your dream home you’ll want to negotiate.
Negotiating is a practice that can seem intimidating, especially if this is your first time, but as long as you remain calm and know what you’re working with, you’ll be just fine. Though it might seem easiest to toss out a tempting offer to secure your dream home, negotiating allows you to get what you want without stretching your wallet too thin. We highly recommend working with a real estate agent for this process to strategize and get the best possible deal. Working with an agent can also be a great way to speed up the home buying process and get you settled in sooner.
When it comes to negotiating as a home buyer, many assume that the seller always has the upper hand – especially if you’re positive this home is the one. But you are in control of when you make your purchase and, as a home buyer, you’ll want to put out your offer during a buyer’s market. A buyer’s market is simply when there is an oversaturation of sellers with fewer buyers looking to purchase. This is obviously the best time for you to swoop in and make an offer, as you may be able to get the seller to agree to a lower asking price. Although the real estate market is unpredictable, you can control when you make your purchase and ensure that it’s at the best time for you.
Going into a negotiation, you should also be aware of the home seller’s situation. Like anything in life, having upfront knowledge can help you out big time. Are the sellers in a rush to sell? Are they dealing with the stress of moving? A seller’s situation could be affecting the state of the home’s repairs or how strict they are with their asking price or negotiations. Have your real estate agent get to know the seller and feel out what they’re looking for as well.
Negotiations are also when you should bring up any contingencies you may have. A contingent offer is when you, the buyer, agree to buy a home but only on the basis of specific criteria being met. This gives you more power and the flexibility to back out of a contract without losing any earnest money or your deposit. Knowing that you won’t be slapped with fees should any roadblocks or red flags pop up can be a huge weight off your shoulders.
One of the most common – and important – contingencies in a sales contract is the home inspection. You should never waive this contingency as it gives you agency based on the results of a certified home inspection. Should the inspector uncover any big issues, you’ll be able to back out of the deal altogether, renegotiate the price or ask the seller to have repairs carried out before finalizing your offer.
A mortgage contingency is also extremely common for home buyers. This clause basically states that should you be incapable of securing the financing to purchase the home, you can still get out of the contract and keep your deposit. This contingency also helps the seller, as it ensures that they won’t be stuck in a situation with a buyer who can’t buy their home. When adding this contingency to your sales contract, you’ll want to pay extra care to the period of time agreed upon to secure your mortgage. If you don’t have the financing within that time frame, you will still be contractually obligated to carry out the sale.
There are many other contingencies that you can add to your contract – everything from wanting a specific piece of furniture or maybe even some landscaping – but the important thing to remember is that you have options and power as the home buyer. Don’t settle for a home that doesn’t fit you without taking into consideration the money you could save during the negotiation period – but also avoid getting overzealous and driving away your seller’s interest.
2. The Right House Will Come Along
While your real estate agent will look for homes based on your interests and price range, you can also join the search by using online home listings to view homes for sale in the neighborhoods you prefer. Once you find homes you like, take a few tours and attend open houses with your agent.
Do your best to envision the lifestyle you’ll have in this new home and if it makes sense for you and your loved ones. Remember, it may take some time to find the home that’s right for you but don’t get discouraged. Although the housing market can be competitive, once you do find a home you love, your real estate agent can help you decide on the best price to offer the seller and you’ll be on your way.
3. Look Beyond The Surface
When doing an initial walk-through or perusing photos online, it can be easy to get swept up in the details. Things like paint colors or choices in flooring may compel you to make an offer – or turn you off from a home – but remember that these details can easily be fixed. Don’t be fooled by staging and avoid getting caught up on superficial upgrades or details. It’s the major repairs, upgrades and renovations that will cost you the most in the long run.
4. Always Trust Your Instinct
The process of purchasing your first home may feel chaotic at times, but it’s important to keep calm and take your time. If something feels off about the process or the house, trust your instinct and don’t shy away from asking questions or taking notes. Remember that showings are your chance to check out every aspect of a home and to take your time on tours and inspections.
When you’re caught up in the excitement of finding a home you love, it can be easy to ignore red flags. Remember, love is blind, so it’s a good idea to know what to look out for ahead of time. Watch out for these more serious warning signs when walking through the home:
- Roof damage
- Leaky pipes
- Water damage
- Cracks in the foundation
- Foul odors
- Poor neighborhood condition
- Electrical issues
- Amateur repairs and upgrades
- Poor drainage
- Lead-based paint and asbestos
Even small issues can turn into bigger problems down the road. And these problems could cost you thousands of dollars to repair. If you see one or more of these red flags, take them up with the seller and work out a fair solution before you buy the home.
5. Your Inspector Is Likely To Find Something Wrong
Once the offer is accepted, you’ll want to get an inspection and appraisal on the home you’re preparing to buy. These steps in the process will protect you and your lender from paying more than the home is worth.
The inspection will uncover any issues with the home, including major repairs or any renovations that need immediate attention. It will also point out any red flags that may cause problems in the future. Meanwhile, the appraisal will give you the fair market value of the home, which is the highest amount the lender will loan.
It's also important to remind yourself that it’s an inspector’s job to find everything that’s wrong with a house, so don’t be shocked by a lengthy home inspection report – it doesn’t always mean the house is falling apart. But if the home inspection comes back with major issues or the appraisal comes back lower than the original offer, you may need to negotiate with the seller or walk away from the home.
6. Don’t Fixate On The Purchase Price
Though negotiations can always bring the price of a home down, there are more costs involved in buying a home than just the sales price. Knowing this will keep you from draining your accounts on surprise expenses you weren’t prepared for, so when you’re creating your home buying budget, make sure to include the following expenses:
- Appraisal and inspection fees
- Down payment and other closing costs
- Homeowners insurance
- Mortgage insurance
- Property taxes
- Moving costs
- Repairs needed before closing
- Homeowners association fees, if any
Also, remember that the costs associated with owning a home are often higher than those that come with renting. For one, you’ll be in charge of paying for maintenance and repairs. With more space to heat and cool, you may also see an increase in your utility bills. If laundry and landscaping were offered by your landlord, you may have to buy necessary items like a washer, dryer, lawnmower and tool set.
7. Be Flexible
With anything, it can be frustrating when things don’t go according to your plan, but with the unpredictable nature of buying a home, remaining calm, flexible and adaptable can make the process a lot smoother. Don’t set yourself up for disappointment by having a strict timeline or schedule that everything must abide by – because chances are, things won’t go exactly as planned. Roadblocks are inevitable, but having a realistic timeline and being aware that closings are often delayed can ease your mind.
The Bottom Line
Purchasing a home is as thrilling as it can be overwhelming. But when you’re equipped with the right knowledge, you can approach the process with confidence. By knowing what to expect, you’ll be better prepared to find the right home, handle the expenses and smooth over any bumps along the way. And Rocket Homes℠ is here to help. For more insight on how much home you can afford, check out our home affordability calculator.
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