As the housing market continues its rebound, more and more people are emerging from their home buying hibernation and looking to buy a new home. And with interest rates creeping up, now is a great time to get in the game. Whether a first time buyer or a veteran home owner looking for a change in dwelling, it’s easy to get caught up in the excitement that home buying brings. Purchasing a home can become very emotional very quickly, which is why it’s so important to be smart, have a plan, and avoid getting in over your head. Here are 5 home buying tips to ensure you are financially ready to buy your dream home.
Home Buying Tips:
1. Know what you can afford. Banks are much tighter with the money they lend out today than they were prior to the housing crash, and often require at least 10, 20, or even 25 percent down depending on the type of loan. This being said, it is still important for YOU to decide how much you can afford to spend on a house, and not the bank. Just because you can get a loan for X number of dollars doesn’t mean that’s a good idea…just ask the thousands of people who have gotten into trouble with this line of thinking over the last decade! It’s critical to determine the price you are comfortable spending on a home BEFORE you start looking. This includes how much you are able to use for a down payment as well as how much you can pay each month. If you have a financial planner, sit down with him or her and review the numbers as well. Once you determine your home buying price range, only look at homes that fall within it. There is nothing more disappointing then falling in love with a home that is more than you can afford, so save yourself some heartache and look only at what is realistic.
2. Calculate the ancillary costs. Don’t forget to factor in the “other” expenses that will go along with your new home. What will be the cost of property taxes and homeowner’s insurance? Will the rates on auto insurance increase with your new address? Factor in commute time and distance for work as well, will you be adding in extra wear and tear on your car, or increasing expenses for public transportation? Will it cost more to heat and cool the new house, maintain the interior and landscaping, and for general upkeep? Taken one by one these costs may not be significant, but the cumulative effect may be substantial and should definitely be factored in when determining a budget.
3. Study the market in your area. If possible, take the time to educate yourself about the housing market in your desired home buying neighborhood. What are homes going for? How long are they staying on the market? It’s good to look at homes online and in person well before you are ready to pull the trigger so you are comfortable in assessing a home’s value when it’s time to buy. You may learn that the houses that you really like in your target area are more than you can afford right now, and it would be better to delay the house hunt until a larger down payment can be accrued. The more you know about the market, the more well equipped you will be to make a financially sound decision when the time is right.
4. Hire a good realtor. There is not much of a down side for employing a realtor when you are buying a home, as the commission is taken from the seller’s profits. However, there is a huge variation in realtor quality and you want to make sure you entrust this transaction to someone who really knows their stuff. Personal recommendations are always a great place to start, as well as certain agents who “specialize” in the area you are looking to live. Pick at least two or three initial candidates and then interview them for the position; be sure that they understand what features are important to you and what your price parameters. You need someone who will help you evaluate what properties are truly worth so when you find a home you can put in a competitive bid (but one that’s not overly aggressive). Don’t be afraid to ask your candidates for references, and speak with a few former clients to see how satisfied they were with the service. This will only increase the likelihood that you find the right person for your home buying experience.
5. Leave your emotions at the door. Even the best laid plans can run amuck when emotions get involved. Setting a budget does no good if you “fall in love” with a home that’s well above it. It’s easy to talk yourself into spending more if you are already imagining your family sitting down to Thanksgiving dinner in the beautiful dining room! Of course this is much easier said than done, but recognizing that your emotions are influencing your judgment is an important step to staying rational and making sure you don’t become “house poor.”
House hunting is an exciting adventure that happens only a handful of times in a person’s life. Make sure you utilize these 5 tips when buying your next home, to make sure that your decision is a financially responsible one. Happy home buying. Thanks for reading.
Twitter: @FrugalFinance1 and @seeitmarket
Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of her employer or any other person or entity.
