When you decide to purchase a home, you soon will soon find there are a lot of choices that come with making that decision. Determining how to know how much home you can afford, the best floor plan to fit the needs of your family, and the right place to live is enough to make your head spin. It is important for you to take the appropriate steps in home buying so that you can make the best decision for what will most likely be your largest lifetime purchase.
Determine Your Price Range
You’ll probably find out quickly that what you can afford for your home may be less than what you prequalify for at the bank. Although prequalification for a mortgage loan is a formula based on income, debt, and down payment, it doesn’t take into consideration money needed for other important items and projects needed for your home, such as furniture, appliances, or landscaping costs.
If you’re planning on purchasing a “fixer upper,” you also need to consider costs for the hidden expenses that may come with an older home, but may not be covered in the loan. Many people make the mistake of buying a home at their prequalified maximum loan amount. This can lead to being “house poor” and finding yourself in a financial situation where you are unable to pay for house improvements, save for vacations, plan for retirement, or pursue other worthwhile financial goals. In order to get an idea of a comfortable price range, get started by using a mortgage loan amount calculator.
Once you have decided on a price range – STICK TO IT! It will be very tempting to look at homes that will max out your household budget. Staying away from these listings will keep your mortgage affordable and help you stay focused on your long-term financial goals.
Assess Your Needs
Differentiating your wants from your needs is a good idea before you start house hunting. Buying a new home can be an emotional journey, and if you aren’t careful you may get trapped into “falling in love” with a home that you cannot afford, or, for other reasons, may not be the right fit for you and your family. Remember to stay focused on your list of needs, and you will most likely acquire some of things you have always dreamed about as well.
There are many needs to consider when purchasing a home, like the square footage of the residence and the size of the yard. If you have a growing family, will there be enough room to accommodate everyone? Are you an avid gardener, or will a large yard become a hassle to care for?
Don’t neglect to consider the type of neighborhood you’ll be living in. If you have small kids and teenagers, you will probably want to start your house hunt in family friendly neighborhoods. Assessing the neighborhood and schools is very important, depending on the needs and the desires of your family. Think about how long the commute will be to work, the proximity of grocery stores, schools, gyms, and parks. Research the crime rate and statistics in the area and decide if you are comfortable with the findings. Also, don’t forget to check into the property taxes in the area and possible HOA (homeowner’s association) covenants and fees that might come with your prospective neighborhood.
Taking an honest assessment of your needs and being patient with the process will go a long way in keeping you focused during the journey and empowered throughout the process.
Find the Right Realtor
Unless you opt to go it alone, finding the right realtor can be essential in securing a house that meets your expectations. With few exceptions, the seller pays the realtor’s commission, so having someone on your team can be a tremendous asset with very little risk. Choosing the right realtor will go a long way toward finding the home you desire.
Five Tips for Choosing the Right Real Estate Agent
- Look for a professional, trustworthy agent who is willing to give references of homes they have sold or found for buyers in your desired area. Often word of mouth recommendations from friends, neighbors, and colleagues who have been happy with their realtor or agent prove to be the best predictor of success.
- Make sure the agent is up-to-date on the market trends and has detailed information about the area you are searching in. This will be key in helping you find the most compatible property for your family in an ever-changing housing market.
- Find a real estate agent that is willing to go to bat for you. Good agents aren’t afraid to be aggressive and are willing to negotiate. Some agents even find homes for buyers that aren’t currently on the market.
- Ask the real estate agent about their strategy in helping you find your home. They should be willing to tell you how many houses you can expect to see in a week, along with updates on current listings in your price range.
- Let your expectations of professionalism, punctuality, and performance be known from the beginning.
Don’t be afraid to shop around for a real estate agent you feel the most comfortable with, but be prepared to sign a buyer broker agreement when you have decided on the right agent for you. This agreement will outline your duties to each other. The real estate business is a competitive one. Although in most cases you are not responsible for their commission, their compensation comes from your home purchase.
The more specific you are in articulating your needs, wants and overall lifestyle, the better your agent can match your goals to the appropriate house. If you decide to forgo a real estate agent, the internet is a great place to start looking for any homes that are for sale in preferred neighborhoods. However, remember that professional agents have experience in areas such as closing costs, market value, and negotiating that will certainly be an asset in your pursuit. If you find a great real estate agent, you will have the added benefit of an experienced professional who can help you understand how to know how much home you can afford.
Consider the Market
An important consideration before starting a house hunting trip is the real estate market. The “temperature” of the housing market fluctuates, and with it, so does the pricing. If you are home shopping during a “seller’s market,” you should prepare yourself to pay full price for a home. In fact, you may even unwittingly find yourself in a bidding war on a home that may not have received nearly the same attention during a different selling season. Be sure to keep in mind your determined price range and don’t let the competition pressure you into a house you really can’t afford.
On the other hand, in a “buyer’s market,” you may find that you have an excuse to be picky and have more time to negotiate with the seller. It’s always beneficial to examine the number of days the house you are looking at has been listed. Price, condition, and location usually determine how quickly a home will sell. If one or more of these factors is not ideal, there is usually room for negotiation.
Get a Home Inspection
Even when you believe you have found your dream home, don’t forgo a professional home inspection. The average inspection will take about 2-3 hours and cost around $300. Considering that the inspection includes major components of the house from the foundation and framing to the heating and cooling systems, a home inspection can be well worth your money. From structural issues to water damage, a home inspection can save you from a future unforeseen nightmare. Keep in mind that most used homes will have minor damage or flaws, but for significant problems, plan on continuing your search or negotiating with the seller for repairs.
Congratulations on buying your first home! There is a lot of satisfaction and pride that comes from homeownership. Although it requires great financial discipline and hard work, owning a home can not only prove to be one of your greatest investments, but can also help provide emotional stability and roots for you and your family for years to come.