5 Things to Know Before Buying a House
If buying a home is one of your financial goals, you’ll need to start educating yourself about the home-buying process, the requirements (financial, credit and otherwise) to buying a home in the area you’d like to be in and how to avoid common first-time homebuyer pitfalls.
What to Know Before Buying a House
Understand the Process and Timeline
Buying a home isn’t like buying a loaf of bread—or even a car. You can walk into a car dealership this afternoon, write a check and walk out with a new vehicle an hour later… but even if you’re not getting a mortgage (and most do), buying a home takes much longer and requires a number of steps. Here’s a quick rundown of the process (but you’ll need a much more in-depth look at each step to be truly prepared):
- Loan pre-qualification
- Finding your dream home (yay!)
- Making an offer
- Getting an acceptance or counter-offer
- Property inspection
- Getting an appraisal
- Signing all documents and finalizing financing
- Closing (everything is official and you get the keys!)
It’s More Than the Purchase Price
Houses cost much more than their purchase price—and if you’re comparing your monthly mortgage payment to your monthly rent payment, you might be in for a surprise. Here are some costs homeowners have but renters don’t:
- Homeowners’ insurance (much more than renters’ insurance)
- HOA fees
- Property taxes
- Maintenance costs (especially if something goes wrong)
Avoid New Credit While Buying a New Home
One common tip about buying a home is how important it is to avoid making large purchases—especially on a credit card—before the closing. As you’re moving through the home-buying and mortgage process, your lender is scrutinizing your credit and anything that increases your debt to income ratio could lead to a denial. The best bet is to spend a couple months living frugally until your mortgage has gone through—and don’t buy the new furniture until after closing.
Don’t be Fooled by Cosmetics, including Staging Furniture
Sellers will try to make their house look as good as possible by sprucing up the paint and staging with fancy, spotless furniture. Make sure you look past this staging to see the things that really matter—how is the foundation, the roof, the electrical system? Is there water damage? It’s easy to paint a room but hard (and expensive) to replace the foundation.
Prepare for Closing Costs
Buying a home often comes with a surprising number of fees, some of which aren’t entirely clear at the beginning of the process. Some of these fees have to do with the mortgage process, others with the fees levied by real estate agents and still more with the escrow, inspections and title transfer.
According to Zillow, you can generally expect to pay between 2 and 5 percent of the total price of your home in closing costs. Savvy homebuyers should remember that many (though not all) closing costs are negotiable—and you can also see if the seller is willing to pay (or split) closing costs.
The bottom line is that buying a house is expensive, and some of the costs are hidden—especially from those who have never been homeowners. To avoid a financial crunch, educate yourself about the process and the costs of both buying the home and maintaining it.