If you’re going to buy a house for the first time, it could be one of the smartest decisions you’ll ever make or one of the biggest mistakes you’ll ever make regarding your finances. The difference between the two usually comes down to a few important decisions made before you get the keys to your new home.
Instead of looking at all the things that you should have done before you start to buy, let’s look at something that many people ignore when they are about to buy a house—and that could save you (or cost you) a lot of money.
Home inspection is an unexciting term, but one of the most powerful tools you will have as a buyer (and one of the most important tools you will have as a buyer, too).
When the sellers accept your offer, typically, your inspector will point out both minor and major problems with the home that need to be fixed. You can either ask the seller to address these issues or lower your offer price based on those issues.
Most buyers think that the seller is not willing to negotiate, but the reality is that many sellers would like to negotiate rather than hear they may lose the purchase of the property if the deal is not negotiated; because they do not have the opportunity to sell the house again. That is an important negotiation-to-sell point.
Before you even make an offer, there is something you should consider early in the process: your budget.
In particular, it is about more than just your monthly mortgage payment.
There’s more than just the house itself when owning a home. There are additional costs involved such as property taxes, home owner’s insurance, possible HOA fees, and possibly private mortgage insurance that can add up over time.
A general rule of thumb is to keep your total housing expense at 30% of your after-tax income or less. This is not an absolute, but it is a good way to keep things manageable.
Another good tip is to keep your budget below your maximum capacity and therefore, make room for negotiation if you make an offer.
Finally, don’t be in a hurry to make an offer on a home unless you like the area and feel comfortable there.
Here are some questions to ask yourself about the area you’re thinking of moving to:
- Is the area safe?
- How far do I have to commute?
- Am I going to be happy living here for a long time?
If your relocating to a new town or city it can be risky to rush into a purchase, therefore, I highly recommend that you rent for at least a short period of time to better understand the new area.
Getting pre-approved for a mortgage can save you a lot of headaches in the long run.
Obtaining pre-approval is an important first step when purchasing a home as it allows you to have a clear idea of what your borrowing limits are. It also shows potential sellers that you are taking the house-buying process seriously.
Buyers who are pre-approved are considered to be less risky by sellers. As such, pre-approval gives your offer a better chance over another buyer’s offer who does not have pre-approval.
In addition to knowing your numbers, pre-approval also builds trust and confidence in the whole buying process.
One very important step that I know does not seem as exciting as pre-approval, but is probably one of the most critical steps in the home buying process, is home inspection.
Skipping a home inspection or selecting the lowest cost home inspector is not a risk you want to take.
A good home inspector will thoroughly inspect the entire home and will identify any potential concerns; concerns that you may not have otherwise noticed on your own.
The report you receive from a good home inspector becomes your protection net, because it helps you avoid surprises when you move into your new home and provides you with leverage during negotiations.
In conclusion, paying a little more today for a quality home inspector could save you significantly more money in the future.
Purchasing a house is not simply an independent choice, but rather a series of interdependent choices.
The area where you choose to live has a large impact on your life.
Having a pre-approval for a loan will determine whether or not you will be able to execute the transaction.
Having an inspection done on the home prior to purchase is essential as it may increase or decrease your future costs.
Negotiating the price of the home will directly result in the ultimate amount spent on the home.
Therefore, if you are considering purchasing your first home, do not allow urgency to dictate your decision.
Be diligent in your research so you are making educated decisions and being flexible throughout the process.
When you evaluate your options appropriately, you are not only purchasing a house, but are also creating your family’s long-term financial success.
