5 Things First-Time Homebuyers Need to Know
First time homebuyers have so much to deal with when they’re starting the process that it’s hard to shortlist the most important things for them to keep in mind. Clearly, it's best if you're as prepared as possible -- and if you're already on the hunt for your dream home, you probably know a bit about what you're doing already.
That's why we're offering up a mix of big stuff and some alternative advice you might not get elsewhere.
1. Don’t fool yourself into thinking buying a house is strictly a financial transaction. You’re going to have a lot of wild emotions. Maybe you’re going to get attached to a house that goes under contract before you’re ready to make an offer. Or you’ll end up fighting with your spouse, in a real nasty way, over whether or not you really need a walk-in closet in the master bedroom.
If you're not careful, you can lose your mind to the stress. Have a good support group handy; you may well need it.
2. Whatever you do, don’t take out any new credit, charge anything on your credit cards or do anything out of the ordinary during the underwriting process. We at home.loans have watched too many first time buyers get overly excited, then take out a Bed, Bath and Beyond credit card to buy new curtains for their house that hasn’t closed yet.
Then -- you guessed it -- their income to debt is too high and the whole thing comes crashing down. Buy the house first. Then buy the curtains.
3. Always get a home inspection. It doesn’t matter if the house you’re buying is 10 seconds old -- it can still have problems. The various materials that go into a house can be faulty, the foundation may be shifting, the roof could be put on wrong -- there are any number of things that can go bad.
When building a home from the ground up, there are almost always surprise issues that have to be fixed, fast. Homeowners of new homes generally do not have home inspections done, and the construction company won't know the subcontractors made mistakes in installing things like plumbing or HVAC systems.
They try to inspect the houses as best they can, but while they are banging new houses out one after the other, they tend to miss things. A construction site is a chaotic place -- especially when there are several different specialties working around one another. Always have a home inspection.
4. You may not be ready to buy. It’s more than a house, it’s a whole lifestyle change for some people. You’re not going to be able to pick up and move to France on a whim anymore, you have a mortgage. Buying a house means setting down roots, tying yourself to the community and to a responsible financial future. You have to plan for replacing the roof. You have to figure out how to best handle regular maintenance. A lot of buyers buy because that’s just what they’re supposed to do. But, seriously, if you’re not ready to be married to a needy structure, don’t buy now. Houses can be hard to sell or even rent out, depending on your market. Wait until you’re really ready for the best outcome.
5. Know what you can, and can't, afford. It's tempting to grab the biggest loan (and house) you can find. But take a step back and think practically about your budget. The easiest way to do this is add up your monthly income and multiply it by 0.3 to get the maximum amount, ideally, you should be paying for your home (that includes your mortgage payment, property tax, HOA dues if applicable, and regular maintenance). For example, if you make $4,000 per month, your ideal monthly home expenses should be no more than $1,200.
On that note, you may assume you will only continue earning more over the years, but will you be able to pay your mortgage if you or your partner loses their job? What if you change jobs, have a child, or have an elderly parent move in with you? All of these are potential circumstances that could put you in a tough spot if your mortgage payment and home maintenance costs are more than 1/3 of your monthly income.