One of our biggest accomplishments as a family was buying our first home. Needless to say, not many of my friends had bought their first homes yet so we were a bit at a loss initially about what to do, when, what to research, and what was important to know. A lot of y'all asked us how we did it and wanted to know important things to keep in mind in your own searches, so I'm starting a series this month on things to know about buying your 1st home: everything from my top 10 tips, to hidden costs, what to renovate and what to leave, and key questions to ask your realtor.
To start, here's a quick run down of the ten things you need to know about the home buying process - all in one place!
1. Set a budget & determine your down-payment - This is the most important step. Be honest here on how much you want to spend monthly and what you can afford to put down as a "down payment" right away. When I say monthly, I mean your house payment, interest, utilities (gas, water, heat, electricity, tv, etc), and then make sure to compare that to your lifestyle budget (what do you spend on groceries, clothes, alcohol, dates, coffee, etc) so you have a realistic number of what EXACTLY you can spend. This is important because your "mortage" is not the only thing you will pay on your house: there is a down payment, closing costs, monthly interest and sometimes even mortage insurance (keep reading for more deets here).
2. Talk to the bank to get "pre-approved" - Now that you've figured out what you can pay monthly, it's time to figure out how expensive of a house/what mortgage you can take out and pay back. There are two main types of mortgages: a 30-year payback with usually lower interest and a 15 year payback with usually high interest (more risky for the bank, right?). So, you actually have to go talk to a bank. That's right, they will run a credit check and then will call you on the phone to discuss some things about repaying your mortgage. Do some research about what banks might be offering deals if you have a credit/checking account, credit card or other programs with them (we got our interest rate down wayyy lower by doing this).
PRO TIP: Questions to ask the bank. What does the loan looks like from a principle and interest rate standpoint? How much your mortgage will cost OVERALL each month (roughly)?
PRO TIP: Loan Types. There are different types of mortgages and interest rates you can take out. The most popular are defined below.
Here's some more reading for you on more details. Take a look at The Total Money Makeover for more tips on this.
PRO TIP: Tax Write-Offs. first time homeowners get a tax write off as long as you close on your house before the end of the tax year (woot!)
PRO TIP: Other Down-payment Options. If you need more $$ for your down payment, you can use part of your 401k or IRA to add to your down payment. Be careful about this though and if you do go this route, have a plan in place on how you will pay yourself back into your retirement funds.
3. Look at what you were planning to spend monthly vs what you were approved for and adjust your budget - Once they give you a number, you're going to be like OMG I'M SO RICH, I CAN BUY A MANSION!! Stop. I promise I'm not being mean, bear with me. That's the MAXIMUM they will offer you. Remember your number from #1 in your budget? Ask the bank what THAT total mortgage looks like and for them to break down everything that is included to make YOUR budgeted number. That's the cost of the house, after down payment, at the rate and monthly cost you can pay back.
4. Hire a realtor - in most states it's "free" for you and realtors can help you figure out better negation points, talk about renovations if you're interested in that, look up neighborhoods and be your advocate. Next week's post will be on "Questions to Ask Your Realtor" so stay tuned for more here.
5. Look at the Multiple Listing Service (MLS) - if you hired a realtor, you should get access to the MLS. It's like zillow or apartment.com or realtor.com but have live information about what houses, condos, land, etc is available and where it is in the negoaition process.
PRO TIP: Most online sources like zillow, realtor, etc are actually pulling data that is one-week delayed!
6. Pick out houses and go take a look - make a list of the houses you want to see and speak with your realtor. Even better, ask him/her to do a filtered search to help funnel the houses with YOUR requirements to your desktop/smart phone to cut down on some of the work for you!
PRO TIP: Things to look at on MLS BEFORE seeing the property. Make sure to look at if it's on a flood plain or any environmental disaster zones, foundation changes and at other things you might negotiate in a potential offer. Is the water heater old? What about the AC? Are the appliances something you'd like to keep or bring your own? Is there any furniture in the house you'd maybe like to negotiate? Any minor repairs or cosmetic adjustments you'd like such as: repairing carpet, fixing damaged baseboards, installing hardwood floors, painting etc that might be something to write for an "allowance" for in your offer?
7. If you like one, drive by at night to see the neighborhood - I sound crazy, I know. But seriously, you want to feel safe in your new home, so take a look at what's going on at night to make sure it's a good fit for your family.
8. Make an offer - The first thing you do is fill out a ton of paperwork with your realtor. Likely, other items you'll need are below:
PRO TIP: Write a letter and/or include a photo. This shows the sellers that you're serious and adds some personality and emotion to the negotiations...especially if there is more than one offer for the sellers to consider...and if you're bidding under the selling price.
PRO TIP: Things to ADD into your offer as addendums. Make sure to write in things like the washer/dryer, fridge and curtains/blinds (so you don't have to worry about neighbors seeing your booty!)
9. Inspection Time - you'll have the home inspected for "standards" (i.e, that all electrical outlets are up-to-code and safe or if the foundation is set or if you need to replace a light bulb or even a hinge on a cupboard!) but usually pool and mildew/mold inspections are additional (at least in TX). If something goes wrong, you can usually pull out and get your earnest money back. Sometimes, depending on the results, you can use this as a negotiation to have the sellers fix something or to provide cash for you to complete any updates/repairs, etc.
10. Sign document(s) - Once you've gone through the inspections, it's time for final negotiations and then, it's off to the finish line. Plan to spend at least an hour signing documents, getting the deed, floorplans, and mortgage documents when you go to your "closing on the house meeting."
PRO TIP: Closing Costs Defined. This is where closing costs come in like new keys, paying realtors, loan origination (or starting) fees, appraisal and inspection feeds, title searches, title insurance, surveys, taxes, deer recording feeds and credit reporting fees. You can usually negotiate who pays some of these in your final offer, too.
There you go! My quick list of how to buy a hose! Next week, I'll lay out some major questions to make sure you ask your realtor about before closing on your home.
Did I miss any major points? Comment below about YOUR experience.