How to make your first home-buying experience a success.
You’ve been paying off your debts, watching your credit score rise, and have saved enough to make a down payment. You might even have qualified for a loan. But does that mean you are truly ready to make what might be the largest investment of your life?
Let’s back up a minute and talk analogies. Say you want to buy a pet. The initial monetary outlay to buy a cat or dog is one thing. But the spending doesn’t stop there. You needed to buy accessories, food, and so on. An emergency that requires veterinary care might happen, or you might have to pay to replace the carpet that Fluffy’s been using as a scratching post.
It quickly becomes apparent that there are extra costs beyond the initial purchase — and that’s just to buy a pet. Here are some considerations before you buy a house.
1. Figure out what to spend
Don’t necessarily buy what you can afford, recommends Cheryl Reed of Angie’s List. You need to plan for mandatory fees, such as property taxes, homeowners insurance, and homeowner association dues. These fees are not necessarily static; they can go up, and you need to be prepared to pay them. Try to keep your mortgage payments to no more than 28 percent of your salary so that you can handle all the extras.
2. Research available programs
Check HUD.gov for state programs you might qualify for. Kelsey Casselbury of Crofton, MD, took out a CDA loan, Maryland’s program to make homes affordable. Her only requirement was to take eight hours of a homeowner class. She also received $5,000 for closing costs, repayable upon sale of the home.
3. Scout out the neighborhood
Choose a neighborhood that matches your lifestyle. If you have kids, pick a house in a good school district. If you want to walk to restaurants and shopping, you typically need to be in the historic part of a neighborhood. Modern amenities a must-have? You might need to live farther from the city center.
Listen to the neighbors, suggests Kathy Adams of Lakewood, OH: “Do you hear barking dogs and screaming kids? They’re staying.”
4. Understand the art of negotiation
Some sellers might take lower than asking price if they believe you will treasure the house as much as they did, which is what happened with Debbie Kemp of Kansas City, MO.
“I came in $2,000 below the asking price but insisted that I wanted to keep the statue of Mary on the side of the house,” says Kemp.
Sold! The seller rejected a higher offer from a buyer who asked that the statue be removed.
5. Budget for furniture
Unless you’re happy to picnic every night on a blanket spread out on the floor — and with the neighbors watching through your naked windows — you’ll need to buy furniture, and this cost is nothing to sneeze at: real estate professionals estimate it could run you 25 percent of the cost of the home.
David Bakke, a writer for Money Crashers, spent $3,000 when he moved into his first townhome. “The last thing you want is to start life as a new homeowner with a high credit card debt.”
6. Look into home warranty plans
Rich Leffler, author of the book Insider Basics for the First-Time Home Buyer!, says buyers should always purchase a home warranty. “It’s like having a bumper-to-bumper warranty on your car.”
Home warranties, which are separate from homeowners insurance and purchased from home warranty companies, usually cost a few hundred dollars annually and cover the heating system, air conditioning, water heater, and appliances. Leffler also recommends that homeowners start putting away $100 a month in a “home fund” as soon as they move in, which they can use to pay for repairs after the warranty runs out.
7. Decide how long you’ll stay
Unless you know you’re buying your dream home, “consider the cost of moving,” says Reed of Angie’s List. If you don’t stay in the home for at least five years, you probably will not have enough equity built up to cover fees such as closing costs and a home inspection.