Before I get into the tips of buying your first home, I want to make one thing clear. For these tips, I’m assuming you’ve sat down and decided how much you can afford and what you’re looking for in a home. There is a lot of work that goes into home buying before you ever step inside of a house for sale.
Before you meet with a real estate agent or start looking at home, take the time to sit down, look at your finances and decide what you want in a home. Make a list of wants/needs in your new house. Look at pictures of comparable homes on the Internet. Don’t go into this process blind.
1. Title Insurance
Get title insurance to protect you from an unclean or disputed title. If you close on your dream home and the previous owner’s Aunt Matilda shows up claiming the home was left to her in a will, you won’t have to worry. The title company will deal with Aunt Matilda because they have insured a clean title. The lender will do a title search before they approve any mortgage, but they are not 100% accurate. You never know what’s going to pop up when a home title is changing hands.
Just about every lender out there requires title insurance when buying a home. There are two types of title insurance lenders’ insurance and owners’ insurance. Lender’s insurance is what the mortgage company is going to require, and it’s going to protect them. You can opt to purchase additional coverage with an owners’ policy, which will give you, as the buyer, some additional protection.
2. Consider a Survey
Unless you are getting a standard subdivision lot, get the property surveyed. 2.3 acres on the deed may actually be 1.5 acres when surveyed.
Some lending companies require you have a survey completed before you can buy the home. In some cases, the previous owner may have done a survey, and you can get an affidavit which states there have been no changes to the property. One of the additional benefits of the survey is it can show if a neighbor is encroaching on your property (or if the land or building is actually on your neighbor’s property).
3. Home Inspector is a Must
Hire a certified home inspector. You need to know before you buy if there are structural or mechanical problems. Make sure you understand the report. It might be suggested to be there with the home inspector so they can explain what they find. In fact, if it’s possible, make sure you’re at the home inspection (at least at the end), to ask any questions or get any clarification.
The home inspection plays a major role in the home buying process, which makes it vital you pick an inspector you trust. This could be an inspector recommended by a friend or a co-worker, or it could be someone with excellent reviews. If you don’t know where to start looking, homeinspector.org is a great place to find certified and qualified inspectors.
4. Consider a Home Warranty
Home warranties are not typically worth the investment for someone who owns all their appliances or maintains a healthy emergency saving. However, many people have benefited from having a home warranty included in their first time home deal.
A home warranty covers many of the major working parts such as air conditioning, electrical, plumbing, and many of the major appliances. Do some quick research to learn more about things that are covered by a home warranty and learn whether or not it might be a good idea for you.
A good inspector should catch major problems, but you never know what could come up when you’re moving into a home where all the major working systems and equipment are pre-existing. Many first-time home buyers are able to negotiate for the seller to cover the cost of the first year of home warranty coverage, and you can always cancel it after the first year. It might be worth checking into.
5. Diamond In The Rough
Look for a home that is in a nice neighborhood, but toward the bottom of the price range for that neighborhood. Any improvements you make will have a better chance of increasing the value of the house by bringing it closer to neighboring houses.
6. Bypass the Mess
Overlook clutter, bad landscaping or outdated carpet. These are issues that can be inexpensively fixed and may help you get a great deal.
7. Eyes Wide Open
Don’t overlook a bad floor plan. This will take major money to fix and, if not fixed, will make the home more difficult to resell. At the same time, you should try and overlook some of the minor problems with the house. Don’t get caught up with all of the “small problems,” remember the diamond in the rough.
8. Plan to live in the home at least two years.
Why? Because after two years, all of the gain when you sell (up to $500,000 for a married couple) is absolutely tax-free!
9. Don’t Forget Closing Costs
When you’re looking for your new home, it’s easy to get caught up in the excitement, but don’t forget some of those additional costs you’re going to pay.
The closing costs are going to vary depending on the price of your home, the company, the state you live in, and much more. The average closing costs are around 3% of the value of the home. Your agent can give you a rough estimate on how much you’ll be paying, but don’t forget to set the money aside.
10. Pay for Points… Maybe?
One of the most confusing parts of the first home buying process is navigating the mortgage loan portion. Mortgage points (also known as discount points) are paid to the lender at closing, and for every point, you get a lower interest rate. This is what the mortgage companies call “buying down the rate.” One point is going to cost 1% of your mortgage amount.
When you’re deciding if you should purchase discount points, you need to do some simple math. Basically, it all boils down to long you’re going to live in the home and if you’ll break even. Take the price of the points, divide it by how much you save every month by the lower interest rate, and the number you get determines how long you have to live in the home before you break even.
11. Stay Under Pre-Approval Limit
The preapproval process is what shows the mortgage company that you have the finances to pay for a home. The pre-approval process is much more complex and involved than a pre-qualification.
During the pre-approval, the mortgage company is going to require various documentation, like proof of income, employment verification, bank statements, a credit report, and much more. After they have all of the information, the mortgage company.
12. Homeowner’s Insurance
One additional factor you need to add in the home-buying equation is homeowner’s insurance. Your lender is going to require you have an insurance plan in place to protect their investment. Not only is homeowner’s insurance required by the lender, but it’s also a great purchase for any homeowner. You never know what Mother Nature is going to toss at you.
Your homeowner’s insurance premiums are going to vary based on dozens of different factors, like the home’s value, the deductible, the coverage limits, the location, the age of the home, and much more.
Go for it! A home, when bought properly, is still the great American Dream.