Before You Buy Your First Home Read This!
Buying your first home is going to be one of the most exciting times of your life. Chances are, you are upgrading from a small apartment, with a terrible landlord, that you pay too much in rent for. You’ve been doing this for two plus years and you are ready for the freedom of a house, or at least you think.
While I will not lie, home ownership is awesome, it also comes with a lot of frustrations. As of this article, I’ve gone through the process twice and each time there is something I wish I would have done differently before signing that final contract. I’m not alone in this feeling. I have friends that have gone through the process, only to then discover that they needed thousands of dollars worth of repairs in just the first year.
For this article, I’m going to pull from my personal experiences of being a homeowner for over four years now. Along with that, I’ve asked my friend, Marie Brummett, to help out and give me an insight into her experiences. If you’ve never bought a home then be ready for a ton of information coming at you fast. In fact, if you are planning on making the largest purchase of your life in the next year, then save this article to your favorites. I promise you are going to get a ton of value here.
If you’ve already bought a home, then don’t worry. Take a walk down memory lane with us and reminisce if you’ve encountered some of these common headaches. Along with that, if you have other tips, please feel free to help others out by leaving a comment below. That’s why we’re here! To help each other.
Let’s Start at The Beginning
Buying a home will put you through every emotion imaginable and then some. You’ll think you’ve found the perfect house online and become excited. Then when you go to see it, you’ll realize it’s a dump and never want to look at another. This process can go on for months, if not longer, and it’s exhausting. Before you even think about looking for a house you need to answer the question is it right for you to buy?
Buying a home is a huge commitment and for 99% of you, the largest purchase you’ve ever made, by a mile. It may even be the biggest purchase of your entire life. You NEED to be ready to buy a home, not just think you are. If you’re on the fence then check out my article: Buying vs. Renting. What’s Your Best Choice? This should give you a definitive answer that’s going to allow you to make a wiser financial decision. If renting still seems to be the answer, no worries, keep reading so you know what to expect in the future. If buying a home is the answer, then welcome, let’s get into it.
Get Your Money Right
Understanding the true costs of home ownership is something most people overlook. If you don’t have a budget then this is going to be difficult for you to plan. At the minimum, you need to calculate all the costs associated with not only buying but also maintaining. You must use the current state of your finances to calculate this. Don’t try to forecast into the future. Again, we don’t have a crystal ball, use what you have now.
The largest cost you will have is the down payment necessary. This can be as much as you want and as little as 5% of the home cost. The larger the down payment the lower your interest rate will likely be. Other upfront costs aren’t things to overlook either. You need to pay an application, processing, and appraisal fee for the mortgage as well as any inspections. Yes, it can get costly.
After all of that, you need to evaluate the monthly payment. This includes principal, interest, insurance, and property tax. Additionally, if you put less than 20% down you will have to pay PMI, which is mortgage insurance. Starts to make sense how the mortgage crisis of 2008 happened now right? There is a lot to consider here.
Once you have all of this added up you need to make sure you can comfortably afford it. The point of this website is to never live paycheck to paycheck again. If you are having to cut out a ton of other things and work extra hours to afford a home then you are doing it wrong. Be wise, live within your means.
There’s No Rush
The absolute worst thing you could possibly do is rush into buying a home. I don’t know about you but I look at the drive-through menu for 5 minutes and that’s just $10, not $100,000+. You think forgetting to order that chocolate shake is bad? Just wait till you get stuck with a $5,000 bill to fix your air conditioner because you skipped on an inspection. Seriously, this is going to take time.
The first thing anyone should do is understand what they need in a home. These need to be well defined not only for your needs now but as well as the ones down the road. Most people stay in a home for at least 5 years, if not much longer. Surely your life will have some major changes in the next 5-10 years.
The obvious example here is children. If you plan on having one or more than maybe that 2 bedroom/1 bath isn’t the best choice. To counter this, if you travel a lot then why buy a huge 5 bedroom house? Think about your immediate needs. Here are some more examples.
- Location close to school/work
- Fenced in backyard for animals
- Garage for your vehicles
Until you actually own a home, you won’t really know all of your home attribute desires. Do I like hardwood floors, or do I prefer carpet in the living room? Is there enough storage space/cabinets in the cabinets, or do I need more? Can we make due with the small backyard for our dog, or do we need something bigger? Don’t be surprised when your preferences and desires start to evolve the longer you live in your house. Certainly, things can be changed/updated/fixed in a home, but be sure to calculate that in your budget if you find a home you love that needs a little TLC.
We’re in the information age and if you’ve read any articles of mine you know I love the internet. Starting to look online is your best bet. Go to Zillow.com and see what’s available in your area. As you do this, know that the chances of you getting any of these homes are almost zero. Sorry to be a Negative Nancy, but it’s true. Unless we’re in another recession like 2008, then good homes will go fast.
The first house I bought I went and looked at it the day it came on the market and put an offer in the next day as I was boarding a flight to Mexico. Homes weren’t lasting a couple days and I had already had one slip away from me.
To help you get ready to pull the trigger, look online to get a better idea of what you want. One of Marie’s regrets was that she didn’t start earlier. She said, “The more you look, the better you’ll understand your criteria and budget. It will also help take the sting out of the rejected offers or houses that don’t live up to their online presence”.
Get a Realtor
Before we get into the main benefits of a realtor let’s debunk a myth. You pay $0.00 to use a realtor as a buyer. Let me repeat that, they help you find a home, give you tours, and do all the paperwork for free.
Realtors can be great tools to a first time home buyer if you get the right one. I’ve had bad experiences as many others have and this is mostly because of lack of screening. For my rental, I just took the first person that volunteered, big mistake. To be frank online reviews aren’t where you should find a realtor. These can often be friends of the agent who left them a review to boost their business. Instead, I suggest going by word of mouth. If you know someone who has had a good experience ask them a couple questions.
- What were the things you liked/disliked?
- Did it seem like they had good knowledge of what to look for in a house?
- Were they flexible with their time?
- Professional, good communicator, and organized?
Unlike myself on my second rental property, Marie had a great experience with her realtor. “There wasn’t a single moment I felt like I didn’t understand what was going on or feel like I was too naive to do this on my own”. This is exactly how your agent should make you feel. Marie went on to say how her realtor helped with lenders, inspectors, and insurance agents. If your agent is just showing you a house then you have a bad realtor.
Don’t Skip The Inspection or Warranty
If you are getting a home financed through a bank then they’ll most likely suggest an inspector, if not require you to have one. If the bank doesn’t then you MUST go out and find one. Much like a realtor, the best way to do this is by word of mouth. Inspectors are like realtors in the fact that there are some great ones and even more horrible ones. Do your due diligence and find a good one.
You and I aren’t experts on what to look for in a building structure. Frankly, I don’t think most of us care. That is until that bill hits to fix the termite damage. An inspector will go through every little thing and tell you what your potential issues are. I had an inspector check that every single receptacle in my home worked, I loved it. Another measured the elevation around my first renal and helped me understand why I needed to fix some drainage issues.
An inspection is going to cost you a couple hundred bucks but it has the potential to save you tens of thousands of dollars in the long run.
Much like an inspection, a warranty is another option when buying a home. To dive fully into home warranties would take a full blog post but in my opinion, they are 100% worth it. Picture this, you just made the biggest purchase of your life and 6 months later the water heater goes out. You’re stuck with that $1,000 bill. If you had a home warranty it would cover that.
Prices range widely but usually, they cost around $1,000 per year. I will warn you though that items covered can be quite specific. I tried to get a $150 washer gasket (random, I know) covered and in the fine print was a line how that gasket, under that specific brand, wasn’t covered. While this was disappointing it was just $150. If nothing else they will offer peace of mind, which to me is worth it.
If you choose to opt out of a warranty, then having an established emergency fund, which we have discussed previously, is extremely important. There won’t be any warning when your hot water heater stops working and decides to flood your basement. If you ignore doing either of these then you are just gambling. Don’t get me wrong I love a little gambling but not when the odds are this stacked against me. Very rarely do I suggest take the easy route but in this case, it makes too much sense. Suck it up, get a warranty.
Wrapping it Up
The best advice I got from the interview with Marie was a term her realtor taught her of avoiding homes where someone “put lipstick on a pig”. We’ve all watched HGTV and seen people flipping homes to make money. This happens all over the country, including where you live. The term refers homes that look amazing but the structural aspects are done improperly.
This poor construction will 100% cost you down the road. It may be as little as a bad paint job or as expensive as foundation issues. You think your soft new carpet is nice now just wait until it starts coming loose and ripping because it was installed incorrectly.
The bottom line and key message of this whole article is take your time. If you are feeling rushed then you are doing it wrong. Everything from searching online, taking tours, getting through inspections, and so on will take a couple months at a minimum. The process for Marie took 5 months and me the same.
Getting discouraged will push you to make rash decisions that you’ll later regret. Seriously, this is an exhausting process and you are going to have points where you think it’s not worth it. In the end, it will all be worth. You’ll have a great first home that will fit all of your needs.