Are you a first time home buyer? Follow this essential guide for buying a house to ensure you’re looking for the right things when searching for a home.
The average one-bedroom American renter spends $11,280 annually just on rent.
The average first time home buyer’s age? 32.
The average age someone is when they first move out on their own? 25
So, just based on national averages alone, the average adult is spending $78,960 on rent with nothing to show for it before buying a home.
According to government averages, that number is over a quarter of what it costs to live in a brand new built home in the present time.
We know that buying a house can be scary, but why spend the rest of your life paying money into something you will never own?
Today–let’s talk about some tips to get you from just dipping your toes in the water–to really feeling comfortable with buying a house.
1. Rule 101: When Buying a House, Know What You Can Afford, and Stick With It
Have you ever watched House Hunters? And there is always some lovely couple on the show, and they both have average jobs: let’s just say for the sake of this fantasy, they are both teachers.
Then, they give the realtor this long wish list of what they want, and when the realtor asks their budget, they say something like, “$750,000.”
And you, as a Millennial or a Gen X-er or a Baby Boomer, are just like, “How? How in the world can two teachers afford a house that cost almost a million dollars?”
Short of having a trust fund the answer is…drumroll, please…living outside your means!
Mortgage brokers use something called the “debt-threshold” rule in which you are not supposed to pay a mortgage that is more than 36% of your income.
So, for example, if you made $100,000 a year, you shouldn’t pay a mortgage that cost more than $3000 a month (36k a year).
You may think that once you buy a house: you will buy fewer cocktails, go out to dinner and movies less, not spend as much money as Target, etcetera.
However, you are buying a house: you are not buying a prison. Why would you make all these sacrifices in your life just for an extra bathroom or dual sinks?
If it turns out you do have extra income leftover on a monthly basis, you can always add-on to your house.
Because guess what? It is your space, and you bought it, so voila!
2. Start Saving Your Money and Doing Your Research on First Time Home Buyers Programs
According to the Federal Housing Administration, the minimum anyone can put down on their first home is 3.5%. This may not sound like a lot, but this number sometimes goes all the way up to 20% depending on the type of loan you get.
Make sure once you feel like you are in that “buying a house” mode, you start putting that money into savings ASAP.
It would also be a good idea to talk to your bank to see if there was an account you could save that money in specifically for a down payment on a house, or a type of an account with the highest interest return.
Any money you can be making off of your money while it sits there collecting is good for you and your future.
Another really smart thing to look into is first-time home buyers programs.
They have them in several states, and while many of them have a couple regulations [for example, you may need to take a class, or you cannot rent out your home for the first five years you rent it, etcetra]: these programs can come as an extreme financial benefit for first-time individuals buying a house.
These programs are great! Most of the time, you do not have to pay them back. And, on top of all of that, they will give you up to a certain percentage of help towards your down payment.
3. Do Your Mortgage Homework and Get a Tutor
Sharpen your pencils, because it is time for a pop quiz!
Do you know what all the differences are between a fixed and adjustable interest rate mortgage loan?
Will you be getting a loan that is government insured? What does the “A” stand for in FHA loan?
Are you eligible for a Veterans Affairs Mortgage?
Did you know the United States Department of Agriculture offers loans in rural areas for borrowers who meet certain income requirements? It is managed by the Rural Housing Service and offers over $216 billion in loans.
Do you want a Jumbo loan?
Or would you rather have a conforming loan?
What does APR stand for?
Did you know interest rates can change on a day to day basis?
I do not want you feeling overstimulated, but buying a house, and borrowing 100s of thousands of dollars from a bank is no joke.
There are lots of websites, government agencies, banks, and credit unions that can help you simplify and figure out the mortgage process so that you too can feel like a pro.
4. Get A Pre-Approval Letter
You know when you go in for a job interview in you just dry cleaned three-piece suit? You feel all beautiful and handsome. But the guy next to you is wearing khakis and a button-up?
Sure, he still looks semi-professional. But you my friend, you look like you have your head in the game.
A pre-approval letter is the three-piece suit of buying a home.
All it is an official note from your lender that thoroughly examines your financial situation and proves on paper and in writing how much that person is willing to let you borrow from them.
It isn’t necessarily a necessary step, but it something that you can use to show sellers that you are much more serious about buying a house.
This may be a small move, but in the end, it gives you the upper hand over other buyers.
And as the saying goes: it is better to have it, and not need it, then to need it, and not have it.
5. Choose a Realtor that Shares Your Priorities, Values, and Moral Compass
Realtors are salespeople. It is their jobs to sell people on some of the biggest expenses of their lives.
But when you are choosing when to help you in buying a house: do not be caught up in the pitch.
Make sure to do your research, and choose someone who aligns with your priorities and values.
With the internet, this task has been made easier, and you can often research great real estate companies online.
However, dig beyond their personal webpage. Make sure to check on verified nonbiased review sites like: Google, Yelp, and Facebook.
There are also some serious financial risks that can come with having the wrong realtor, i.e., paying too much or having to pay for things that needed to be fixed, but then were not before your closing.
Remember: you are going to be spending a lot of time with this person. This person is going to ideally go with you to help you in buying a house you love forever. So make sure you and them are a good fit from the get-go.
Professional tip: See what their selling ethics are like as well. You can tell a lot from a realtor based on what they will do to help you with buying a house, but you can tell just as much from the tactics he/she are willing to use to sell one as well.
You want ethical through and through.
6. A House Doesn’t Have to be Where You Live Indefinitely; it can Also Be An Investment
This is a common thing realtors hear when both buying and selling houses.
People are nervous about buying houses because they do not know how long they are going to be living in a space, so they don’t want to put the money into a home.
But a little bit of research and certain trends show us that certain places are becoming popular to move to.
Certain states are getting new-comers in droves.
If you are moving to these certain parts of the country, i.e., Vermont, Oregon, Colorado, California, etcetera: there is a high probability that your property will go up in value, and is unlikely to go down.
For example, this year alone, homes in Colorado have risen in value by over 10% in value, and have continued to have record-breaking years since 2014.
If you are going to be there, even for a little bit, why not buy instead of just try?
You are still going to need somewhere to live, and chances are with these trends: you will be able to make buying a house than you would merely be throwing money away into rent.
7. Think Outside the White Picket Fence
Your home is a representation of you. When you are buying a house, it does not have to be the generic two bedrooms, two bathrooms, front yard, and a two car garage.
If you like that? Great. Perfect. You do you 100%.
But if you don’t? That is ok too.
Lots of people dream of living in log cabins, townhouses, lakehouses, ranch style homes, houses with butterfly roofs, semi-detached houses, and maybe even a treehouse or two.
Repeat after me:
I do not have to settle. I do not have to settle. I do not have to settle.
Remember: you are buying a house, so you should try to get as close to what you want [within your budget and the confines of science] as possible.
Do not limit yourself to the things you only see in magazines and on television. If there is something that you like, and you want to see if your realtor has something similar when you are buying a house: just ask!
The worst they can say is no.
You would be surprised what architectural treasures can be found in the smallest of towns.
8. Take a Peek Around Your Neighborhood a Couple of Times
Neighborhoods are like in-laws: you sign up for one part of the package deal, and with it comes another.
Before you buy a house in any location, make sure to take some time to look into school districts, distance from grocery stores, the commute to and from local places (including your work), and honestly, just drive by the neighborhood at random times of the day to see what the “ordinary” looks like.
For example, all components can be the same, but something like zoning for a different school can drop your home’s value by 20%.
9. Get a Home Inspection Before You Buy
A lot of people do not want to pay for home inspections, but let’s just say that these things are one of the wisest investments you can make for your home.
Usually, your realtor will set it up for you. And they only take about 2-3 hours.
Most home inspectors are looking for things that would save you thousands of dollars in the long run, like your interior plumbing system, your electrical system, any structural damage to the walls, ceilings, floors, windows, basement, or foundation.
They will often look at larger appliances like the home’s heating, air conditioning system, and water heater.
You and the seller (and sometimes your realtor) get a copy of the inspection and can decide cost-wise what you want to do about it.
They may want to fix all the things for you before you move in, or they may cut the price of the house before they sell it. In turn, making it your problem to deal with.
Either way, it is better to spend the $200-400 on the inspection than to later and unexpectedly have to replace something like the entirety of your basement.
10. Fortune Favors the Brave
Buying a house can be a scary process. But it doesn’t have to be one.
With all of the resources out there, not only online, but at banks, credit unions, real estate agencies, and government agencies, buying a house can be a lot easier than you think.
Stop wasting all your money on rent.
It isn’t benefiting you to invest in a space that doesn’t belong to you.
Wrapping it Up
Put in your time, do your research, and when you are ready, there are countless hands out there to help you into home ownership.
The time for you to buy a home is now.
Questions or Comments? Please feel free to contact us!
