My associate, Alex King, and I each recently bought a home in California. And while we are excited to be new homeowners, we were quickly faced with the reality of purchasing one. Like many first-time homeowners, we were surprised by some costs and the time it took to get approved for a loan. We share the eight tips below with the hope that they will help ease the pain for others planning to buy a home.
Don’t Mentally Move in Until You Strike the Deal
If you have already mentally moved into your home before closing, you will lose your ability to objectively determine whether that particular property is the best fit for you and your family. You may also lose leverage in negotiating fair terms since the seller can tell if you have taken the bait, hook, line and sinker.
If you proclaim, “I absolutely have to have THIS house,” is the seller likely to drop the price or make any repairs that might be found during the home inspection?
Instead, when you think you may have found your ideal home, do your best to blanket your excitement when negotiating with the seller and stay objective on whether it is indeed the best home for you and your family.
Set Aside Money for Home Repairs
Your potential new home may seem to be operating just fine, but damages may surface just a few weeks down the line. Make sure you set enough aside to cover big ticket expenses.
For example, my friend recently purchased a home with a driveway that needed repairs which reached $12,000, and Alex’s home will need a new roof. When buying a home, it is wise to err on the side of being conservative as to how much home repairs are likely to run.
If the seller has either disclosed flaws in the home or a home inspector identifies problem items, be prepared to spend money to fix those right away. If the seller has disclosed a troublesome hot water heater, washer and drawer, roof, etc., odds are it will need to be repaired sooner rather than later.
Set Aside Money for Interior Design
In addition to home repairs, you will likely want to make some design changes, including purchasing furniture and other items for your home. I personally am budgeting for patio furniture, since I know I’ll be itching for it once I move in.
Prepare to Close on a Mortgage
Some first-time home buyers are surprised that it costs several thousand dollars to close on a mortgage for their home. It is smart to plan ahead and ask your mortgage broker for an estimate of how much the closing costs will run when you get pre-approved for a loan and not wait to find out how high closing costs will run a few days before closing.
Strategically Select Your Mortgage
A 30-year fixed mortgage is not a one-size-fits-all solution for financing your home. I’m working with a savvy mortgage broker to see whether a seven- or 15-year mortgage would best fit my circumstances as I may sell my home in the next few years.
Gather All Necessary Paperwork and Information
Getting approved for a home loan can be a tedious, stressful process. Just when you think you have provided every single last possible bit of your financial details, the mortgage broker is likely to ask you for one more piece of information.
To keep from going crazy from the paperwork, plan for the time it will take to complete it. Alex and I had to remind ourselves to ask our broker how much documentation we would need before loaning a large amount of money to a complete stranger.
Time Your Home Purchase Around Other Life Changes
There are only so many hours in a day, and finding your ideal home, purchasing the home, getting approved for a mortgage and planning a move can be extremely time consuming. It’s ideal to focus on buying a home when you do not already have other big time commitments going on in your life. For example, try not to purchase a home when you are having a child, planning a wedding or changing jobs.
Beware of Your Own Hubris
The idea of paying a real estate agent 2.5 to 3 percent of the purchase price of your home might seem absurd at first, but you should involve an expert when you are making one of the biggest investments of your life. Get the help you need and don’t be overconfident that you can figure out all of the home-buying wrinkles on your own. The right real estate agent is likely to earn every penny of his or her commission by not only being a knowledgeable resource but by also being emotionally supportive and trustworthy. You will be glad you had one during the home buying process.
Buying a home is an exciting but also a stressful time. Hopefully these tips will help make the process one more of celebration than of regret.
Alex King is a co-author and an attorney at Bend Law Group, PC, a law firm focused on small businesses and startups.