The time has finally come: you are ready to take the leap into buying your first home! This is an incredibly exciting- albeit, tremendous – undertaking. As you begin your real estate research, you may feel as though there is information being directed at you from an infinite number sources. With so many steps in the home buying process to conquer, a considerable amount of life-changing decisions to make, and an impending housewarming party to organize, this process can be extremely overwhelming.
With this in mind, where do you start? What are you really getting yourself into? Your Castle has gathered the best tips and tricks from experts (a.k.a. past home buyers and our highly experienced real estate agents) that you need to know before purchasing your first home.
Here are the top 5 things you need to be aware of as you begin the undertaking of becoming a homeowner:
1. The home buying process doesn’t actually begin with searching for a house.
Buying a home begins with becoming pre-approved for financing a mortgage through a qualified lender. While this is not exactly the most thrilling step in the home buying process, it is arguably one of the most crucial actions you will take. Mortgage lenders determine your buying power- or, your cash available combined with your borrowing capacity. This is a vital step in the buying process – it can often be the difference between having your purchasing offer accepted or rejected.
At Your Castle, it is our policy for each buyer to obtain a “Pre-Approval” letter which will be included with any purchase offer you wish to submit on a home. This number varies widely for each individual home buyer, and should be determined by a trusted mortgage lender. At Your Castle, we always recommend the experienced team at Castle & Cooke Mortgage. They can help take you through the pre-qualification process when you are ready to begin your home buying journey.
2. Budget for (much) more than you expected.
Always overestimate your budget! As much as all of those dollar signs might pain you to look at, it is better to be cautious and pessimistic when estimating new home expenditures. Jared Taylor from Anderson, Indiana explained that even though he qualified for about 40% more than he ended up spending on his mortgage, he still struggled with finances for the first few years after purchasing his home.
To avoid falling into the same financial quicksand, Taylor’s advice to new homeowners is to, “truly know your budget and leave yourself a cushion for emergencies.” These emergencies can include mishaps such as equipment failures, insurance deductibles, large repairs, and other housing expenses. If your other living arrangements had “paid for” utilities (electric, gas, water, sewer, trash, and to a lesser extent, cable), you need to figure those expenses into your budget, as well.
Additionally, many neighborhoods oftentimes have fees for homeowners associations (HOA). Be sure to research your HOA so you know what expect before moving in. Your state or city should have an HOA directory, similar to this one for the state of Colorado, or this one for the city of Denver.
Along with HOA fees, other fees such as loan interest, property taxes, and home insurance should be taken into account. These can fluctuate and increase year over year, so it is best to allow these payments a high expense estimate.
Finally, do not max out your budget when bidding on a home. When you finally find your dream home, it is tempting to place an initial bid that skims the top of your budget in order to outjockey the competition. The best practice when searching for a new home is to look for houses that are priced below your planned monetary disbursements. This allows you the flexibility to increase your initial bid, and helps to prevent a mortgage payment that you may not be able to afford.
3. Location, location, location.
This phrase is not just stolen from the title of the popular HGTV television show. Oftentimes, people buying houses become distracted by details such as wanting a covered front porch or a slightly larger kitchen island. You must remember that these are all cosmetic details that can be changed over time after you purchase the house. What you cannot change, however, is the location of your home. Because of this, it is incredibly important that you choose your house for the neighborhood.
Deborah Shuster, president of the Business and Professional Women of Colorado, suggested that potential buyers, “look at the surrounding area for services that may be needed (daycare, grocery store, school ratings, fitness center, etc.), and meet the neighbors next door. Neighbors can make a huge difference in your happiness.” Shuster also advised driving through the neighborhood on various days and at different times to check out traffic, noise, and activity levels.
If you have children, or are potentially planning on having them while located in your new home, school districts are an important factor in deciding where the house should be located. Make a habit of observing school rankings and reputations in your new area. It is also a good idea to opt into taking tours of two or three schools before settling down.
4. Make sure you know what you are paying for.
It is your responsibility to be an informed buyer. You have the right to carefully examine your potential new home with a qualified home inspector. Before you place a bid, be sure that what you buy is satisfactory in every respect by requesting a home inspection from a professional. A home inspection gives a buyer more detailed information about the overall condition of the home prior to purchase. While they will never directly answer the question, “Should I buy this home?”, they will give you an in depth, unbiased look at your potential new home to:
- Evaluate the physical condition of the structure, construction, and mechanical systems
- Identify items that need to be repaired or replaced
- Estimate the remaining useful life of the major systems, equipment, structure and finishes.
A qualified inspector will also provide you with cost estimates for the possible repairs and replacements. Make sure you hire a highly reputable inspector – someone who will do everything in their power to find any and all issues with the house. As stated before, you need to assume that all estimates are low – it is a rule of thumb that you double the estimates to get a more realistic idea of what repairs may actually cost.
When it becomes time to place a bid, do not simply pay asking price. You may (and should) negotiate a price. Do so only after the inspection, when you have a better understanding of the updates, remodels, and replacements the house may need.
Remember, YOU are the buyer. You should always be aware of exactly what you are purchasing. If you don’t know, ASK. It is your money, and you need to be as well-informed as possible before making such a large investment. If you are unsure of what kind of questions to ask during an inspection, use this list of questions curated by the National Association of Realtors® to help guide you.
5. Find a GREAT real estate agent (because they matter so much more than people let on).
Your real estate agent will be by your side almost every step of the way on your path to a new home. You will need an experienced agent that is open and honest with you. Your agent needs to be a trusted resource that can separate signal from noise and help to navigate the complex process that real estate has become.
When selecting an agent, ensure that your agent is knowledgeable about the areas that you are considering moving to. Try using this questionnaire created by Your Castle as an interview guide to finding your perfect agent.
At Your Castle, we believe that access to the best and most timely information can dramatically shape your decisions, and no one does more research on the local housing market than we do. We have experts in every field eager to guide you skillfully from the beginning to the end of your real estate journey. By selecting a Your Castle Real Estate agent, you are ensuring that you will be among the most informed home buyers in Colorado.
Do you have any other helpful tips as an experienced home buyer? Let us know in the comments below!