Tips When Buying a Home

Michelle —  February 25, 2013 — 10 Comments

Buying a new place, whether it be a condo, house, townhouse, and so on, can be a very long and difficult process.  When we bought our current house that we live in, it was extremely easy. Of course easy is relative, but it sure did seem easy.

We looked at a lot of houses, but we only put a contract down on one and it was accepted (after a couple of negotiations). Our move in date was set for just a couple of weeks after that and we moved in maybe less than one month from the day that we first toured the house. Even our loan officer said he’s never been through a home process as quick and as easy as process was.

However, I have heard others’ stories about how hard their home buying process was. Some have to wait months to sign the papers and move in. Some submit multiple offers just to be outbid by tons of other people.

There are so many things to think about when you buy a new home, and in today’s post I will be listing some of those.

Put 20% down

Putting 20% down has many positives for a home buyer. It will lower your payment in more than one way, mainly that you will take out a smaller home loan.

If you don’t put down at least 20%, then most mortgage companies will require that you pay Private Mortgage Insurance (PMI). This can add an extra $50 to $150 to your monthly mortgage amount, and possibly even more. We made the mistake of not putting 20% down and now have to pay PMI. We definitely won’t be making this mistake with our next house.

Get pre-approved

Getting pre-approved is a big step.  Not knowing what you can “afford” and looking can be a big problem because you might fall in love with something but then no bank approve you for that amount. If you are pre-approved, then you can eliminate houses out of your search that are not possible due to your budget. It will save you a lot of time and the possibility that you will buy way outside of your budget.

Buy what you can truly afford

Now, just because you were pre-approved for a loan, it does not mean that you can truly afford that loan amount. Banks are notorious for approving individuals for MUCH more than they can afford. When we bought our current house, we were pre-approved for much more than could truly afford. Also, you are pre-approved normally on your gross income, not net income. Your gross income is of course much higher than your net and can make it seem like you can afford a house, when in reality you cannot.

Our real estate agent also gave us a little tip: if you are pre-approved for much more than you ever plan on buying a house for, then ask the loan officer to send you a pre-approval letter stating that you are pre-approved for a smaller amount. This way when you put a contract on a house, the seller and/or their real estate agent do not see some crazy number that someone believes you can afford. This way there will be less negotiations as the seller won’t be trying to get you to your top dollar.

Think about the long-term

How long do you plan on living in your home? A lot of people will say that their first home will just be a starter home, but what if that ends up not being the case and you live there for quite some time? You might want to look into the school district there just in case you do decide to have children, make sure the house is something that you would like for quite some time, and so on.

What tips do you have for a potential homebuyer?

Michelle

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Michelle is the founder of Making Sense of Cents, a personal finance and lifestyle blog about budgeting, traveling, life, and student loans. Read further on her story and life, and you can also connect with her on twitter.

10 responses to Tips When Buying a Home

  1. My advice to a first time homebuyer would be to not underestimate the costs of maintenance and repairs, especially if you’re buying an older home. I think the average person knows what they are getting into in terms of PITI (principal, interest, taxes, and insurance), but doesn’t usually have an appreciation for maintenance costs. I know I didn’t!

  2. I think financial budget is very important before search and buy home, setting own budget if you chose buy home by loan so calculated how much amount or % effect on same. After setting a budget, an essential factor in your house hunt requires location & agent a guide because you’re agent to gather as much research up front as possible to then maximize your time viewing only the best homes.

  3. I am totally in agreement with your statement about preapprovals. You are definitely right that people should aim to spend less than what they are preapproved for. Another thing potential home buyers should consider is how much their expenses will be if they own a home – what’s the cost of home insurance, property tax, etc.

  4. The real estate agent’s tip is really an important tip. Also, the school district is the number one consideration because most buyers will look at this factor if you ever sell your house. Finally, be aware that the real estate market is not what it used to be; just ask anyone who has bought a house in the last 5 to 10 years. Even people who have owned homes for over that time have seen there houses go down in value. So be careful here about your expectations concerning home ownership.

  5. Wise words Michelle.

    The 20% deposit is becoming a big stop sign for lots of people now. Getting on the housing ladder is more difficult now than before if anything, because the availability of mortgages is not so free and easy.

    Be interesting to see how the market plays out over the next few years.

  6. I believe getting pre-approved is one of the most important steps. It can save you a looot of time and make you narrow down your search. It’s also important not to underestimate the maintenance and repairs costs because these are usually very high !

  7. Not a bad article, I learned a lot … well-written …. great presentation of the material. I wish the author to continue to write in the same vein.

  8. Great post! My coworker and I were were discussing this topic this morning. Thanks for the useful information!

  9. I just stumbled upon this and I don’t think you spend much time updating this blog Michelle. :D

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    [...] @ Provident Plan writes Tips When Buying a Home - Buying a new place, whether it be a condo, house, townhouse, and so on, can be a very long and [...]

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