Here are 10 Pointers we know will help when Home Buying!

Home/Our Blog/Here are 10 Pointers we know will help when Home Buying!

Here are 10 Pointers we know will help when Home Buying!

Life is full of exciting firsts. Your first steps, Your first day of school, Your first love, Your first job, Your first place & your First time Buying a Home. Whether you want to move out of your parents’ home for the first time, own a home after renting for years or buy a place with a spouse or partner, purchasing your first property is a big step. It takes a lot of preparation when you’re in this stage of your life, and a little help never hurts. Renting instead of buying a home may seem like the most convenient or most affordable way to go. It pays to do some simple research to understand the pros and cons of buying versus renting. You may find that owning a home is actually your best option.

Think long-term and think re-sale: Are you planning to have kids? Will you be taking care of elderly relatives? You might be planning to live in your first home for only a few years. In that case, who is your target audience when it comes time to sell the house? If you buy a house in a very bad school district or a house on a very busy street, when you are ready to sell the house, most families with children will be out of your list of potential buyers.

Look at ALL the expenses when you are budgeting for the house: When budgeting for the house, don’t stop with principal, interest, taxes and insurance; add in utilities, cost of commuting and upgrades. Call the utility companies that service the house you are considering and ask for an estimate of what the cost will be, whether there are any budget plans available, etc. Will the gas budget for your car go up if you are moving further away from the places you frequently visit? Budget all of these expenses and see if you can still afford the house.

Ask for the homeowners association contract before you make a decision: Our long term plan is to rent out the house, if and when we move away. With this in mind, once we identified the neighborhood we found most desirable, I asked for a copy of the HOA contract after going to an open house in the area. It turned out that none of the houses in that neighborhood could be rented out. If you are buying a house that is part of an HOA, it is absolutely essential to read the HOA contract before you do anything else.

Don’t bite off more mortgage than you can chew: The classic lending guideline says your principal, interest, property tax, and insurance (PITI) should amount to no more than 28% of your gross income. Obviously, that’s an arbitrary number. Your financial world won’t explode if you stretch to 29% or 33%. But an outsized mortgage payment is going to bite you sooner or later. As we’ve seen again and again over the last four years, lenders aren’t cuddly and understanding. They just want you to make your payments, month after month. There’s also the duration of the mortgage to consider. “Another metric is your age,” says Hodges. “If you’re 55 and a first-time buyer, you better be getting a 15-year loan, right?”

Have at least one steady income in the family: It’s not 2006 anymore, and banks are a lot more scrupulous about checking to see if you have any income before shoveling a houseload of money in your direction. But it’s still your responsibility to make sure you have a steady paycheck to go with your steady mortgage payment.

Carry few or no other debts: A reasonably sized mortgage quickly becomes an unreasonable burden when you mix it with student loans, car loans, and credit card debt. The traditional lending guideline says that your mortgage payment (yes, including interest, tax, and insurance) and all your other debts should add up to 36% of your income or less.

Have an emergency fund: If you have a well-stocked emergency fund now, don’t drain it to fund a down payment.

Have good life, disability, and health insurance: If you’re uninsured or under insured, you’re in no position to buy a house, unless you’re sitting on a giant pile of money. Are you?

Bring a 20% down payment: Small down payments lead to big problems. Reuters’ Felix Salmon crunched the numbers last year and found that mortgages with a 15%-20% down payment were more than twice as likely to become delinquent as mortgages with a 20% down payment for most years before the financial crisis.

Don’t use home equity as part of your retirement plan: Home equity is great—that’s why you should bring a big down payment. But it’s also undiversified, subject to the ups and downs of the real estate market, and hard to quickly turn into cash. It’s fine to have your retirement savings plan reflect the fact that your mortgage will be paid off in retirement and your ongoing housing costs will be low (although, you’ll still be on the hook for maintenance, property tax, and insurance). If you’re assuming your house will appreciate at a lavish rate and you’ll be able to cash out later when you downsize, think again: over the long term, house prices rise at about the rate of inflation.

By | 2017-05-15T14:02:54+00:00 February 23rd, 2016|