While it may not currently feel like a good time to buy a home due to everything going on with COVID-19, it actually is. Mortgage rates are historically low right now, which makes home buying an attractive investment. Depending where you are located/looking for a home, you may not be able to go through the process the traditional way, currently; however, real estate agencies are getting creative and offering virtual tours of homes and doing virtual closings, so rest assured you can still buy a home even if your local area is on PAUSE. Whether you are going through the home buying process in person or virtually, though, I would like to offer some tips for first time home buyers.
1) Buy a House Below Your Means
Just because you are approved for a $600,000 mortgage doesn’t mean you should find a house that requires you to have a $600,000 mortgage. Believe me, I know how attractive a large, fully updated house with a huge backyard is, but you know what’s not attractive? A mortgage payment that you struggle to pay each month. How do you determine how much you can afford to pay each month? That leads me to tip #2.
2) Create a Budget Before Buying a Home
To determine how much of a mortgage payment you can afford, you need to work backwards. Create a budget that includes all known expenses, such as groceries, gym memberships, cable, streaming services, cell phone, car insurance, retirement contributions, etc. Then determine an estimate for utility expenses, including things like gas, electric, oil, water/sewer, garbage/recycling service, taxes, homeowners’ insurance and any other expenses that may be applicable to your home. Subtract all of your expenses (being sure to include any savings contributions you would like to make whether for retirement or an emergency fund or whatever else) and what you’re left with is the most you should spend on a mortgage each month.
3) Beware of Any Fixes Needed
If you fall in love with a home that you think you can afford, make note of anything that you know needs to be fixed, especially anything the home inspector finds and notes in his/her report. Make sure you know how quickly the issue needs to be fixed and how much it will cost. For example, when we bought our house we knew it needed two things: a sump pump and a roof. The sump pump was something we wanted to do immediately to prevent any further damage, but the roof we knew we could put off for a year, so we were comfortable buying the house knowing we would have these two additional large costs.
4) Closing on a House Costs Money
Aside from the down payment, there are additional costs you will incur when closing on a home. Closing costs may include title search, title insurance, appraisal fees, loan origination fees, real estate commissions and deed recording. In addition to these closing costs, you may also be required to reimburse the seller for any prepaid expenses for things like property taxes, homeowners’ insurance and water/sewer. Closing costs vary anywhere from a couple thousand to upwards of $10,000, so it can be a large chunk of change.
5) Furnishing a Home Can Be Expensive
This may sound obvious, but if you are moving straight out of your parents’ house and into a multi-room home, you may be surprised just how much furniture you need. If you are okay with slowly furnishing your home over time, the expenses will be easier to manage; however, if you are planning to have a fully furnished home when you move in, make sure you have budgeted for all the furniture you need.
For even more home buying tips check out these blog posts below:
Calm n’ Cents: 8 Things to Consider Before Buying Your First Home and Merc’d the Mortgage, Which along with sharing the news of having paid off their mortgage in 9 months, includes things they would have done differently
Bucks & Cents: 7 Steps to Getting a Mortgage Loan and Saving Money, Mortgage tips and saving money? Great information for first time homebuyers
Trip of a Lifestyle: Paying Cash for a House at Age 25 Made Us Poorer, The title may be misleading, so I’ll give you a sneak preview by saying being poorer does not necessarily mean it was a bad decision
From One Geek to Another: Six Unexpected Costs of Buying New Construction, Great read if you’re planning on building your first home
Savvy Family Finance: Types of Mortgage Loans: Which is Best for You?, Because there are way more options than just 15- or 30-year fixed rate mortgages
Josh Overmyer: My Horrible House Journey, 2006-Present Buying a home is great, owning a home can sometimes be a different story, though
Keeping Up with the Bulls: 10 Financials Tips for Living on Your Own, As mentioned above, there are more expenses that come after you officially own a home
What are some other tips you have for first time home buyers?
Other than a Lease to Purchase, I’ve never bought a home, as most folks do.
I did design and have one built in 2006. A number of your tips apply to that sort of situation, too.
I hope others will chime in with comments. I’d like to hear their thoughts.