The home buying process can be completely overwhelming, particularly if you’ve never done it before, and sometimes even if you have. In the majority of cases, you don’t know what you don’t know, which can create so much unnecessary frustration and stress. If we’re being completely honest here, my husband and I are a case study on exactly what NOT to do when buying your first home. The whole process can be effectively summed up in one moment, just two days before closing we (ok I) panicked and strongly considered backing out of the deal for a variety of reasons from sheer terror to pure buyer’s remorse. It wasn’t until we were threatened with the potential of a lawsuit (yes, that is a real thing) that we moved forward and purchased the house. In the end, it all worked out OK but there was a lot of unnecessary stress and tears (again, mostly from me) that could have been avoided.
This gap in services and knowledge is a big reason I got into real estate in the first place. It doesn’t have to be this way. There are so many resources out there that we had no idea even existed. There were SO many things we could have done better or differently. And, at the very least, having someone to help guide and advise us through the process would have been a complete game changer. Yes, there is always going to be some inherent stress involved with the home buying process. Buying a home is a huge financial decision and it generally takes a lot of extra time and energy to get to closing day. But, learning from our mistakes and knowing what resources are available to you are super critical in mitigating that stress and actually putting a little joy back into the process. After all, at the end of the day you’re looking for a place that will allow you to build so many sweet memories. Shouldn’t that be even just a little bit of fun?
1. Know your budget BEFORE you get pre-approved for a mortgage (and stick to it!)
One of the best things you can do for yourself is to decide exactly how much home you can afford before you even approach a lender for pre-approval. Why? Everyone’s situation is different, and it is important that you make the right decision for your individual financial situation and lifestyle. Plus, there are a ton of other expenses to consider when buying a home from insurance and taxes to monthly utilities and maintenance.
The truth is, the amount the lender says you can afford may be very different than what you can actually afford. The lender uses what is called a debt-to-income ratio to qualify you for a mortgage but that is generally all they look at when it comes to monthly expenses. For example, when looking to purchase our first home, we qualified for nearly $100,000 more than was reasonable for us to actually spend on a mortgage. We almost spent every dime of it too. That $100,000 was the difference between a move in ready home and a complete gut-job fixer upper. It was incredibly tempting. So tempting in fact that we actually put an offer down on a move in ready dream home, realized exactly what it would mean for our financial situation and revoked it before they even had the opportunity to respond. Sure, we COULD have made the payments on that large of a mortgage but as a result we would have had to sacrifice just about every discretionary expense we had. After all, what fun is a nice house if all you can afford to do is sit in it?
The Solution? Make a list of every monthly expense you have and create a buffer for utility costs and expenses for your new home. Subtract your total expenses from your monthly income and see what’s left. Now, determine how much money you want to comfortably live on after paying your mortgage each month. Keep in mind what your professional and personal goals are for the next few years and work in any margin you think you’ll need. For example, we were planning on growing our family not long after moving in, so we wanted extra margin for the costs that come with children…because kids are expensive! This is the real amount you can afford for a home. Also, try not to assume that you're going to have a drastic increase in salary to compensate for a larger mortgage. Nothing is guaranteed and you don't want to get backed into a corner because something you thought would happen (whether it be raise, promotion or job change) never occurs. Now, go get pre-approved for a loan with this ammunition in your back pocket. Knowing your finances before going into the pre-approval process eliminates any surprise and will reduce your risk of overspending and the added stress that comes with it.
2. Interview several buyer’s agents
Did you know that between 75-80% of buyers work with the first Realtor® they speak to? We were part of that statistic as first-time home buyers and definitely paid the price for the lack of diligence on our end. We felt entirely on our own for the majority of the process. The primary function of our agent was providing key to open the lockboxes so that we could actually get into the homes. A great agent can be SO much more than that. Consider that this person is going to be guiding you through what could be one of the largest financial transactions of your life. It is in your absolute best interest to make sure he or she is a good fit for you. This person should be your advocate and provide you the resources, advice (within their scope of course) and knowledge you need to be successful. The interview process is crucial to determine whether or not they are a good fit for you because, just like any profession, there is a very wide range of skill levels and overall performance in the industry. You wouldn’t hire any other employee without conducting an interview first would you? With so much at stake, shouldn’t be any different. Not sure what to ask? Check out this great resource for 10 questions you should ask when interviewing an agent.
3. Shop around for your mortgage
Did you know a difference in lenders can mean a difference in thousands of dollars of costs both up front and over the life of your mortgage? But, unfortunately, you won’t know that unless you price shop. Check with multiple lenders to scope out fees and other charges. Confused by some of the terminology? You're definitely not alone! Check out this full glossary of mortgage related terms! Know generally have a little room to negotiate, especially if you have the fees and estimated prices from a competing lender. If you find a lender you really like, see if they will price match or beat another. Quite often, they will, especially if you have great credit. Also, know that there are a lenders out there who are notorious for causing a delay in the home buying process. Remember, you want the process to go as smoothly as possible, so it is best to avoid lenders that routinely get closing pushed back due to an error, delayed paperwork or some other issue. Check in with your realtor and rest assured that there is no incentive for them to refer you to a specific lender for a “referral fee”. Any kind of kickback in the real estate industry is totally illegal so you should genuinely get the best recommendations. Agents know which lenders are easy to work with and who is responsive if something needs to be done last minute. Home buying doesn’t (generally) happen during business hours so it is helpful to have someone accessible on evenings and weekends in an emergency. You can also ask any friends who have recently purchased a home how their experience was to get other points of view and recommendations.
4. Research your resources
There are so many different resources available to you as first time home buyers from down payment assistance and mortgage lending discounts to individual government programs. Take advantage! Do your research and check out which ones you might qualify for. It might mean the difference in being able to afford a home or not and many people don’t even know these resources are available to them (we didn’t!). Your realtor should also be able to help with program knowledge as well so feel free to ask them what resources you may be able to access if you’re not sure. Many of the resources may be region specific but check out a few programs here.
5. Don’t skip the inspection!
This is another place I see people try to skimp on cost. Let me just get this out there…it’s NOT worth it. Yes, an inspection is a couple hundred more dollars out of pocket through this often times very expensive process BUT it can save you thousands upon thousands of dollars in the long run. Yes, that means including the extra cost for a termite inspection too. Many issues with a home aren’t going to be apparent to the untrained eye and you don’t want to buy a house that will become a money pit. It’s best to know of any issues going in so that you can financially plan for any expense. Plus, the inspection process gives you the opportunity to re-negotiate if any issues are found. As a result, you have the opportunity for the seller to potentially pick up some of the cost, or maybe even fix the issue all-together, so that it doesn’t all fall on you after closing. Please, please, please get an inspection. This is a couple hundred dollars it really pays to spend.
6. Don’t forget to enjoy the process.
I get it. Depending on how the process is or was for you this may be a suggestion that makes you want to punch me square in the nose. But hear me out. Yes, the home buying process can be long, difficult and incredibly frustrating at times. Odds are, you’re not going to buy the first home that you see so it also takes up a lot of time and energy. But remember that your end goal is to find a space where you will be able to build so many great memories. So, try to find a way to enjoy the process. Personally, my husband and I found ourselves getting super frustrated and discouraged, looking at house after house for weeks. So, we turned house shopping into a date at least once a week. We used the house hunt to explore the surrounding area and our potential new neighborhoods. We visited local coffee shops, bakeries and restaurants throughout the process and even went for a couple walks in local parks. The dates were a great way to get to know the area a little better and honestly became a major reason we purchased the house we did (it was super convenient to a cute downtown area). Sometimes we talked real estate and discussed the houses we visited and sometimes we avoided the topic all together. It made the process much more enjoyable and gave us a break from the monotony of the house hunt. Plus, we created some really great memories too.
I know we're just scratching the surface here from an information perspective. The great news is that there are a lot of opportunities out there for first-time home buyers; you just have to know where to look! Still feel like you need more resources and information? No worries! I will be releasing my first time home buyer's guide soon! Sign up on my email list to get notified when it's released or check back soon!