Attaining the goal of homeownership is typically taken on with bright eyes and big hopes. It’s true some find the home buying process incredibly stressful. They may walk away (if they even get that far!) feeling frustrated, overwhelmed, and fed up. Education is key to avoiding buyer’s remorse or homeownership disinterest. Having a list of what to include in your personal “how to” plan can be helpful. Before someone heads into battle they do so with all the right gear, the most reliable weapons, and superior strategies.
Understanding Your Budget
It’s important for home buyers to establish a budget before they begin looking for a home. How much can they afford to spend? Knowing that figure can help buyers avoid the temptation to overspend. That budget should consider not only the price of the home but also the following:
— The down payment (typically 3 percent to 20 percent of the purchase price)
— Closing costs (generally another 2 percent to 5 percent).
And that’s just for what you’ll pay up front. Your budget should also account for the additional costs that homeowners tend to encounter. Such costs include:
— Property taxes
— Homeowners insurance
— Routine maintenance
— and potentially a homeowners association (HOA) fee.
Figure out how much your cash outflow would be under all realistic scenarios so that you will then be able to determine how much house you can afford. When you have that magic number firmly in your head, you are much more likely to save money on your purchase. You’re also much more likely to save time, as you will no doubt be pickier about where you choose to look.
Researching the Neighborhood
The most important aspect to consider when buying a home is the location. A good location can improve your standard of living now, and be a strategic investment in your future.
Here are six key location-related factors:
Information about the local schools. If you have a young family, this will be of immediate importance. If not, you still need that information because the best schools often reflect better neighborhoods, which is probably where you’d like to buy. But, also, even if you don’t have kids in school, the fact that your location has good schools generally means higher property values. You may want to resell later.
Amenities in the area. This fits in with the schools because, together, good schools and amenities such as parks, shopping centers nearby, good eating places, and access to pubic transportation can improve your living conditions and reduce expenses.
Look at suggested future developments in the area. That suggestion would often come from a real estate agent. You will rarely find that kind of information, but the good agent (note that I said, ‘good’) may be able to show you property in a location where the potential for growth is good, based on what might be developed there in the future. Developers might be planning to build some new infrastructure there – a park, a shopping center, expand public transportation or improve access to a college (thereby creating more of a sense of community). They know all this stuff because they regularly schmooze with city-development types. In other words, they have a special interest in finding a house for you in the desirable
Home Inspection Essentials
A thorough home inspection is very, very important. This is the one chance we have to find out what’s potentially wrong with the critical parts of the house that we can’t see. Here’s why:
- The roof is what shields us from weather (you should get the concept of weather). Any minor visible cues will give us an idea of its propensity to fail in the near future (you should get the concept of time). It’s a pretty important component, I would say. I mean, like it or not, we’ll probably need roofs until we all evolve to have feathers or scales or exoskeletons.
- Most houses aren’t “open concept.” Walls hide a lot of critical components and clues to said components.
- For terraces:
- Take the
- For terraces:
Evaluating Property Value
For potential homebuyers, understanding what a “fair” price for a home will be is important to know right off the bat. After all, the last thing you would want is to overpay for your property. And for most, their home will be the most significant investment they will ever make. It is also the case that this kind of comparison is very useful in fluctuating markets.
A common method to determine how much a home is worth segues nicely to our next point: comps, short for comparables. What were the prices of similar homes (in terms of features, size, conditions, etc.) that sold recently in the same geographical area as the subject property? This is a great way to adjust the price relative to recent comparables.
Finding a home with the right price tag isn’t going to cut it in the negotiation process. You have to know your stuff—in this case, real estate market value—so you can bring in a certain “edge” next time you meet the listing agent. Once you throw out some comps you found during an open house, the surprised mystified look you’ll receive in return will be worth all the effort.
Understanding the Offer Process
Making an offer on a home means playing several angles all at once, so it’s important to come in with a game plan. You should always research the home, property, and area as much as possible and find out what comparable sales look like. These “comps” will give you a better idea of what the actual value of the home might be, rather than its listing price, and you can tailor your offer accordingly. Further, you want to have a good sense of who is selling the homes and why. Understanding the context in which a home is on the market will provide you clues on how to shape your offer.
When you do make an offer on a home, it’s not strictly about the price you’re willing to pay, but about the terms as well. Cash buyers are king in this sense. If you’re offering cold, hard cash, you can likely offer less money overall because you’re offering a “cleaner” deal. Of course, this will cause you to have price sincerity, but it also means you could beat out your competitors. Other terms might include the closing date, the date of possession, and any “subject to” clauses for financing or inspections as well.
You should always be open to making counteroffers and well aware that you might end up in a bidding war with someone else. Stick to your price point and your list of wants and needs, but be prepared to compromise and think on the fly. After all, the art of negotiation requires a sharp eye and an even sharper tongue.
Closing the Deal
The final steps in the home-buying process can be a lot to handle. Just understanding what your closing costs will be, not to mention all the paperwork you’re going to have to read through and sign, can feel like an insurmountable task in and of itself. Closing costs typically range from 2% to 5% of the home’s purchase price and cover things like appraisals, inspections, title insurance, as well as fees for the services of any attorneys you might have to hire. Closing costs aren’t a surprise home expense—if you’re a buyer, hopefully, you know all about them and have been budgeting for them effectively.
And just like that last point, a buyer should without a doubt have a good real estate agent or real estate attorney on his or her side to help them wade through all of the paperwork that’s going to hit them—usually all at once. All of the terms and conditions—hidden in that legal-speak—are going to be, at the very least, mundane and a general pain in the neck. This, of course, is only if a home buyer has already reached the “closing” stage.
And what is probably the worst thing about all of this is that the lengthy “closing” paperwork is going to include many different kinds of items. Some sample documents include the purchase agreement document, “loan,” and related financer’s (home-buyer mortgage documents). And then there are all the financer’s disclosures. All of these other documents are going to have to be looked at, too—and pretty carefully, by the way, but for obvious reasons. Along, then, with that real estate agent”
Preparation is everything, and that’s where a good checklist comes in. A robust checklist will give you all the steps you need to take to buy your next house. From making sure you know all your financing options to checking out the neighborhoods you want to live in—it’s easy to stay on course with a good guide. Once you’ve worked through your list, you’ll know you’ve covered all your bases and can feel more prepared for the huge task that is buying a house.
First and foremost is to assess your financial health. You should know how much you’re willing to spend, what types of mortgages you may qualify for, and understand where the benefits and drawbacks of being a cash home buyer and financing a home are. This will help you know what price range you’re looking in (and make offers in) and what other types of buyers you might be up against in negotiations. Being more prepared will look better to sellers—they might think they won’t have to haggle with you to make a deal in a hot market.
We have a printable checklist you can download and keep it around for when you’re feeling ready to make the leap. Once you check off the last box on the list, you’ll be ready to live in your dream home in no time.