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  • James Veal

9 Tips on Purchasing Your New Home

Although we usually cover topics that span the #financialplanning spectrum, I’d like to take a slightly different task and discuss the ins and outs of buying a home.

For many, it will be the biggest purchase you will ever make.

Some of you are actively in the market and hope to become first-time #homeowners. Others are looking to trade up, while some are contemplating the possibility of downsizing and may be in the process of listing your house.

For first-time home buyers, the process can be daunting. For those who may soon downsize, it has been many years since you’ve purchased, and the process has changed.

So, I want to include a checklist of items you may want to consider when making a purchase. It’s not all inclusive, but understanding the basics, arming yourself with the right information, and putting a plan in place will ease stress and enable you to successfully land the home that’s right for you. Let’s get started.

  1. Do you have a down payment? Putting at least 20% down is ideal. It avoids the need to purchase mortgage insurance and communicates to the seller that your finances are strong. If you don’t have 20%, there are programs for first-time buyers that allow you to put down as little as 3-5%, but expect to pay mortgage insurance. If you are downsizing and have owned your home for many years, you may have plenty of equity. In fact, you might just be able to buy your new home with cash. This may or may not be the route you should take but it is something you may consider.

  2. Time to budget. If you are a first-time buyer, how much can you reasonably afford each month for your house payment? Many first-time buyers forget to factor in property insurance, homeowners insurance, and private mortgage insurance, if required. If you are living with Mom and Dad, keep in mind the added cost for utilities. For those looking to downsize and head into retirement, you may be balancing a different income stream with a new monthly payment (even if principal and interest aren’t part of the mix).

  3. Secure the services of an experienced real estate agent. A good agent is worth his or her weight in gold. Typically, the seller pays the commission, so it behooves you to enlist the help of an experienced professional. He or she will explain how the commission works. An experienced agent knows the ins and outs of the market, how to best handle the many details you are sure to encounter, and how to negotiate with the seller. If you have owned your home for many years, you may not know that new listings hit the Internet hourly. Gone are the days when you get into your agent’s car and receive a list of homes you will be seeing that day. A good agent will empower you by setting you up to receive new listings via email based on your specific criteria.

  4. Pre-qualified vs pre-approved. At a minimum, get pre-qualified. It only takes a moment and it tells the seller your credit is solid and your income is adequate to handle the mortgage payments. In some areas, today’s market is extremely hot, and multiple offers aren’t common. If this is the case, your agent may recommend you get pre-approved with a lender before submitting an offer. The process is much more detailed, and will require tax returns, W-2s, recent bank statements, paystubs, and more. But once you are pre-approved, it enhances your position with the seller, as it communicates that you are financially solid, almost eliminating the odds your financials will sink the deal.

  5. Location, location, location. What part of town do you want to live in? Whether you have kids or not, the school district is important and can bolster values down the road, since families buy in desirable school districts. What about your daily commute? Can you handle 45 minutes or an hour in traffic each day? What are the amenities you require in terms of parks, recreation, restaurants, shopping and so on? Much goes into targeting an ideal neighborhood.

  6. Don’t sweat the small stuff. You love the neighborhood, the floor-plan looks great, the schools are top-notch, but you don’t like XYZ. Remember, paint can be changed, lights can be replaced, and the powder room vanity can be updated. Besides, the personal touches you add will make the home feel like it’s yours.

  7. The myth of the dream house. Be prepared to make compromises. One home will have just the right layout but the kitchen will be too dark. Another will back on to a park or have a beautiful view of the city, but the yard won’t be big enough. What do you want in a home? What’s most important? What projects can you undertake? Prioritize!

  8. Credit reports. This is important, so listen up. You’ve signed a contract but haven’t closed on the house. Don’t quit you job! And stay away from purchases that require new debt, like an auto loan! In either case, you may completely ruin your debt-to-income ratio, and your loan will fall through. Roughly translated: You won’t get the house.

  9. Get a thorough home inspection. In very hot markets, some buyers are willing to waive a home inspection to entice a seller who has received multiple offers. While inspections have limitations, you are rolling the dice if you forgo a comprehensive review. Attend the inspection and ask questions. One more thing: minor cosmetic issues that could surface may or may not be worth bringing to the seller’s attention in a very tight market. Do you really want to lose a house over a small issue? Again, an experienced agent can guide you.

Bottom line – buying a home is a significant undertaking, but one that can be wonderfully rewarding. Preparation and research is well worth the time for what may be your biggest investment and a place you will call home for many years.

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