One year after I bought the house that I currently live in (my first house), I looked back to think about mistakes I made. Many things still haunt me to this day, but I learned from the experience and won’t make those mistakes again. Here are a few things I wish I’d had in mind before I signed those mortgage papers.
Buying a home might be the biggest investment you ever make, so before you start, consider your short-term finances and goals for both the long-term and immediate future. And in addition to having your goals and finances in order, it will help to have your wits about you — buying a house can be mentally and emotionally taxing.
Being intentional about all your choices throughout the process will give you clarity about what you are looking for and why, which will help you stay strong when others tell you what they think you need. You may even find it helpful to create a checklist of the dream house you want — it’s always good to have a plan.
Here are the most important things you need to know about buying a house.
Find a realtor you can trust
Finding a good realtor is the most pivotal component of the home-buying process. Taking the time to find a good representative can mean the difference between a great home-buying experience and a miserable one. A good realtor will hold your hand throughout the process and teach you how to be a good home-buyer in real-time.
There are a lot of realtors in the business, so it’s worth putting in the time to find someone you can really connect with. It’s kind of like hiring an employee. If you’ve ever applied for a job or internship, you already have a good idea of what you need to do.
Start by getting the person’s resume, portfolio, reviews, and references. You’ll want to interview them and see if you like them — after all, you’ll probably be spending many hours looking at houses with them. In the end, you should feel comfortable knowing they’re going to step up when you need them. After that, you just need to sign their Agent Agreement to get going.
Though a realtor isn’t always a necessary component to buying a house these days, it shouldn’t cost you anything (keep in mind that the seller pays the realtors’ commission fees), so getting some extra help is worth it. Their expertise can be priceless.
At the same time, you should never feel guilty about using a realtor’s time. On average, your agent will get 3 percent of the commission on the sale of the home — so for a $100,000 home, they’ll get paid a cool $3,000 for one transaction. So get your money’s worth and ask all the questions you have.
Your loan maximum is rarely what you can afford
You are the only person who can determine how much you can afford when buying a house, so don’t let the maximum loan amount you receive from your lender lead you astray. Use a mortgage calculator to determine what you’ll be paying each month and compare that to your wages. As a general rule, your mortgage payments should not exceed 30 percent of your gross income (before taxes). This can work in reverse to show you what your maximum home price should be. You should never pay for more than you need, and you certainly shouldn’t ever pay for more than you can afford.
Secondly, it’s important to remember that the price tag on the house is just one piece of owning a home. You must consider all the factors of living in the area where the house is located and how those circumstances affect insurance costs (floods, tornados, etc.). Other costs include homeowner association (HOA) fees, yearly taxes, and maintenance fees (the bigger the house, the more maintenance it requires).
Along with your obligation to pay for the mortgage loan, consider what other debts you have, if any. This purchase may put an even bigger burden on you than you think. It’s important to be realistic about what you can afford to pay and the impact this commitment will have on the rest of your life. Be intentional about your budget and understand where all of your money is going before you commit to even more money leaving your pockets.
Don’t pay mortgage insurance if you can afford it
Private Mortgage Insurance (PMI) is a real waste of money in most cases. PMI is generally required when a homebuyer cannot afford a 20 percent down payment. Do not let your eagerness to buy a house cause you to make a mistake that can cost you thousands of dollars. If you make a purchase without the 20 percent down payment, you get stuck paying a fixed amount into the PMI instead of letting that money build equity by paying down your loan faster.
Trust me when I say that PMI can really slow down your progress to pay down your house — I paid more than $1,000 for two years before I got my PMI removed. Learn from my mistake! Save up your money ahead of time to pay that 20 percent down payment and you’ll be in a strong position to handle this big purchase.
A house is not always an investment
A house can be a long-term investment if you treat it like one, but don’t buy one because you think it’s guaranteed to go up in price. The 2008 housing crisis would tend to disagree with you on that.
An investment requires time and attention. If you find a house that needs some love and attention, then buying it for cheap and renovating it may be the thing for you. Many handy families will buy their first home knowing they need to fix it up, so the location, price, and potential can make it a good investment.
If you plan to do this and live in the house for a long time, then it would be in your best interest to hire a general contractor to join your inspection process — he or she can tell you how much work the house would realistically take to improve, and how much it would cost for a professional to do it. Their input can also give you a gauge on how much and how long it would take for you to do it yourself if you are so inclined.
Don’t get emotionally attached
As your realtor shows you potential homes, you’ll find yourself getting excited. Your emotions might run high because you can picture yourself and your family living there — but these feeling can cloud your critical thinking. It’s okay to be excited about a potential home, but you should always take the time to step back and think it through. This is where a good realtor (or an experienced home buyer) can help you identify your blind spots.
I almost fell into this trap because the home I was excited about was nearly perfect. It looked incredible on the outside, and I could see myself and my future family living there, but it had a problem with its foundation. After looking at the foundation repair paperwork, I realized there would be more troubles in the future with this house, especially if it came time to resell.
Lastly, some houses sell quickly, but don’t let the swell of emotions or an imposed timeline pressure you into a decision. In most cases, being safe with a home purchase is better than being sorry that you jumped into a contract too quickly. There will be more houses to consider!
We often take for granted how much emotion plays into how we spend our money. If you can master your emotions, you will have a clear mind at each step of the home-buying process.
Creating a checklist of what’s most important to you can be a big help — write down the criteria guiding your search, and don’t compromise. Your checklist can include keeping your budget under a certain number, how much initial work you’re willing to do to fix up the house, the location of the house, how much you will pay in yearly taxes, the facilities inside the neighborhood, and other factors.
Intentionality and clarity can keep you grounded as you navigate this momentous journey, so don’t be afraid to set aside time for reflection and conversation to get your head and heart straight. If you are making this purchase with a spouse, communication about all aspects of this commitment — from aesthetics to insurance and everything in-between — is paramount so that you’re on the same page.
Be judicious and shrewd when buying a house — once you sign all the documents and receive the keys to the front door, you can start making it your home with the knowledge that you’ve made a good decision.