Buying real estate is one of the largest purchases you will ever make. It carries with it the symbolism of the American Dream as well the feeling that you have reached a certain level of responsibility and achievement. A home is an investment in your future along with a place to lay your head and personalize to your family’s tastes. Often a home becomes an investment that can lead to stronger financial security over time.
Here are 10 fundamental things you must know about this important decision.
- Don’t’ Go It Alone. Real Estate professionals understand the market and factors to keep in mind for this important investment. Many buyers are hesitant to work with real estate agents because of the high agent costs, even though sellers pay the real estate fees for both the buyer and the seller. Having a professional in your corner will help you find the best home and also negotiate the best offer. They are familiar with schools, local commercial and road projects, parks and greenways, that could all impact the long-term value of your home. The seller’s agent represents the seller and their interests, not yours. Having your own representation does not cost extra and will ensure you have someone on your side who understands the process, the contracts, and can educate you on available housing options.
- Get Credit and Lending in Place Before You Begin House Hunting. Loan approval is an essential part of the process unless you are paying cash. Begin with a copy of your current credit report and correct any errors before applying. A lender should be chosen before a real estate agent. The lender can preapprove you for a loan and give you an understanding of what price range you are able to buy. The pre-approval process evaluates your credentials for a more realistic look at what you can afford. It is also best to refrain from making other financed purchases during the approval process. Underwriters pull credit at the time of application and then a few days before closing to ensure the debt and income are still in line. Buying furniture or other large purchases could derail the loan at the last minute, so you may want to wait on that until the home purchase is complete.
- Think Ahead. A home is a long-term investment and must meet your family’s needs today as well as five or 10 years down the road. Will your family size expand or shrink? Do you have time to dedicate to yard upkeep or funds to hire out? Will you entertain? Need a workshop or garage? Amenities like pools and gyms usually are accompanied by higher maintenance costs or homeowner’s dues. How long will the commute to work and school be? Are activities you enjoy close by? Are there features others buyers will not like? Proximity to busy roads or odd layouts can make the home more difficult to sell when the time comes. Job security, schools, and neighborhood are all factors to be considered when choosing the right home for your needs and its overall costs to maintain.
- Everything is Negotiable. The price is the most notable item to be negotiated. However, nearly every aspect of the process is negotiable. Who pays what at closing, date of closing, what stays, and what goes, can all be discussed and agreed upon. Rates and closing costs will also differ across lenders. Points can be paid up front to get the rate down and application fees may be waived.
- Don’t Skimp on Inspections. The buying process includes inspections and surveys. If the lender does not require it, there may be a temptation to skip these to save money. This can be a costly mistake if a problem exists. It is a bargain to pay a few hundred dollars to discover an issue that could cost thousands later. Home inspections can discover deficiencies that allow you to renegotiate the sales price or walk away from a bad deal. A general inspection may not cover issues like termites, lead paint, mold, or other concerns that may exist in the house.
- Know What You Can Afford. The price of the home is just the starting point. Each year you must pay property taxes and homeowners insurance. There may be homeowner association dues and other community fees that need to be built into the budget. Homes also require ongoing maintenance that should be figured into the total cost of home ownership. When these costs are high, compared to your income, you could wind up with minimal discretionary funds for everyday activities and expenses. In addition to debts the bank considers, you will personally want to ensure there will be enough to pay for future needs like college and retirement.
- Look Beyond the Surface. Cosmetic changes are easy to make. You can easily change paint color, but structural problems like foundation issues or reconfiguring the layout, are costlier. Replacing HVAC systems or installing a roof can cost thousands of dollars. Kitchens and baths are also expensive renovations, but offer the highest return on investment when it is time to sell. You will be able to change nearly everything about the home except its location. It may be better to purchase a smaller home in a better neighborhood, than a larger one further away from work and activities. Find the balance that will suit your family’s lifestyle.
- Title The Home with Long Term Needs in Mind. Not everyone buying a home is in their first marriage. Singles, unmarried partners, and second marriages must consider title options carefully. It is not just a loan, but an asset that will hopefully appreciate over time. Titling offers the ability to transfer the asset in the event of death or divide in the event of separation or divorce. Married couples most often title homes with the right of survivorship, which basically means the home transfers to the other person’s name in the event of a death, making the surviving spouse the sole owner. Unmarried buyers or those with children from a previous marriage, may want a different outcome.
- Don’t Buy Because of Tax Breaks. The ability to deduct interest, points and some closing costs can save money each year, if you itemize taxes. This should not be the primary reason for buying a home because tax laws frequently change. Overbuying and counting on the interest deduction to bring costs in line would also be a mistake, because you don’t get the benefit until tax season. Rather look at tax benefits as a bonus that may or may not continue in the future.
- No Home is Perfect. Every home has benefits and limitations. Most buyers are not able to get everything on their wish list when making a final choice for a home to buy. Before beginning your search, prioritize the aspects that are most important and where you are willing to compromise. This will help keep your expectations in line with the home inventory from which you choose.
Buying a home is an exciting event. You get to dream of making it your own and all of the memories that will be shared while you reside there. Taking time to choose your home wisely will bring you joy for years to come.