23 Things Every First-Time Homebuyer Should Know
Lesson #1: Decide location versus space before searching for a home
When first-time homebuyer Jarrod was shopping for his first place in Chicago, he faced a tough decision: Should he buy a small home in Lincoln Park, his favorite area of the city, or should he buy a larger home for a lower price in Uptown, about two miles north of Lincoln Park? Jarrod wanted to spend some time weighing his options, but then another buyer made an offer on the Uptown home he was considering. He needed to make a quick decision or face losing the home, so he decided to put in an offer. The sellers accepted, and Jarrod got the home. But almost a year later, he’s still not 100 percent sure he made the right choice. While he loves having plenty of space to entertain in his Uptown home, he misses Lincoln Park’s proximity to restaurants and nightlife. Before shopping for a home, it’s important to set your priorities and decide which is more important to you: space or location. If you settle on this in advance, you can make thought-out decisions during the home-buying process and avoid the unsettling feeling of buyer’s remorse.
Lesson #2: Don’t commit before you’re ready
Owning a home is a huge commitment -- and a more expensive one than some homebuyers realize. Jarrod’s monthly housing expenses, for instance, have gone from about $1,300 a month as a renter to $2,200 a month as a homeowner. Before buying a home, make sure you know exactly what you’re getting into so you can decide if you’re financially and personally ready for such a large commitment. In addition to your monthly mortgage payment, figure out how much you’ll be paying for property taxes, homeowner’s insurance, HOA fees and other monthly costs of owning a home.
Lesson #3: Sweat equity can save thousands
First-time homebuyers John and Jennifer always knew they wanted to add value to the first home they owned. So when they bought their first place in Roswell, Ga., they immediately started remodeling, and they decided to tackle many of their home improvement projects themselves. The couple spent $20,000 remodeling their kitchen, building a new deck and installing a new patio -- upgrades that would have cost $50,000 by their estimation if they had hired a contractor to do the job. If you have the skills, the time and the patience to live with dust and debris for a while, do-it-yourself home improvement projects can save you a big chunk of cash.
Lesson #4: A down payment is never a bad investment
John and Jennifer originally planned to put around $60,000 down on their first home. However, they changed their minds just before closing when they qualified for a loan that didn’t require any money down. The homebuyers opted for 100 percent financing and invested their down payment money in the stock market. After losing about half of that money, they regret not putting it into their home instead. Putting some money down is a good idea for any homebuyer because it minimizes your risk and lets you start off with some equity.
Lesson #5: The school district will affect home value
Even if you don’t have kids, it pays to check out a neighborhood’s school district before buying a home, as living in an area with a sought-after school system raises your property value. John and Jennifer’s home, for instance, is in one of the best school districts in Georgia, and their neighborhood typically does well in resale.
Lesson #6: A land survey will answer boundary questions
Before making changes to your property, it’s a good idea to find out your exact property lines. A month after they moved into their home, John and Jennifer had their land surveyed and discovered that their yard ended 8 to 10 feet closer to their home than the previous owner told them, leaving them confused as to where to build their fence. You can’t always rely on the seller’s knowledge of the property, so getting a land survey will clear up any uncertainties you have.
Lesson #7: Check building plans for the neighborhood
Shortly after John and Jennifer moved into their home, they learned that a large playground was going to be built in the community -- right next door to them. Since the homeowners have no children, they get to hear the squeaky sound of swings all day, but they don’t benefit from having a playground so close by. Plus, having a playground practically in the backyard is hit or miss when it comes to resale -- buyers with kids may see it as a selling point, while others may not. Before buying a home, find out if there are any building plans near your home to avoid surprises after you’ve moved in.
Lesson #8: Reserve some cash for home improvements
Lesson #9: Dig deeper during inspection
Brooke’s home inspection revealed several nail pops in the shingles on her roof. After having them fixed, she thought she was in the clear because the roof was advertised as new. However, about two years later the nails popped up again and caused a leak. A roofer determined that there were two layers of shingles on Brooke’s roof: a new layer on top of an old one. Brooke felt misled and looked into legal action, but discovered that having multiple layers of shingles is legit in Georgia. If a problem pops up during your inspection, it’s always a good idea to take a closer look. If Brooke had checked out the roof herself, she would have seen the two layers of shingles and known that something was amiss.
Lesson #10: Continue negotiating after the inspection
If a flaw is discovered during your home inspection, use it to your advantage. If Brooke had known more about the roof issue before she closed on the home, she might have been able to use it during negotiations to get a price reduction. Even after inspections, you still have another chance to get a great deal. Staying under budget when buying a home gives you extra cash to add the upgrades and decor you’ve always wanted.
Lesson #11: Real estate is not a recession-proof investment
Lesson #12: Examine both financial and personal costs of buying
Buying a home can require you to make tough personal sacrifices. After adding up the cost of their mortgage payment, HOA fees and other monthly expenses, Becky realized she would need to quit school and get a job so she and Adam could afford their house. While Becky is happy with her decision, if they had saved more money she would have been able to stay in school. Before buying a home, think about what kind of personal and financial sacrifices you’ll have to make. If affording a home is a stretch right now, it might be better to wait awhile and save up more money.
Lesson #13: Read HOA documents before closing
Reading a big stack of papers may seem like a huge hassle, but carefully reviewing your HOA documents is important if you want to avoid unpleasant surprises down the road. Eight months after they moved into their home, Adam and Becky learned that their HOA dues were increasing by 5 percent. If they had read their HOA documents, they would have known sooner and been able to prepare. Before buying a home in a community with an HOA, read through the covenants, conditions and restrictions (CC&Rs), bylaws and budget and look for anything that could affect you in the future. Also, talk to residents in the neighborhood and get opinions on how well the HOA does its job.
Lesson #14: Secure financing before falling in love with a house
Lesson #15: Don’t spend every dollar you qualify for
Clarence and Angie were willing to come down in their price range, and as a result were able to open up their options to a larger chunk of the market. With financing already secured, they found another great house with ease and were able to spend more on decorating and upgrades. Coming down in price also allowed Clarence and Angie to save more each month and lock in a better interest rate. By not spending every bit you qualify for, you can open yourself up to more options and better possibilities.
Lesson #16: Find smart money
Clarence and Angie found their “smart money” by getting a loan through a non-profit organization that had agreements with several lenders to give first-time homebuyers affordable loans. These kinds of opportunities are out there; you just have to look for them. Remember, you still have to be underwritten by the lenders, so be prepared to show your credit history and attend classes and workshops the non-profit group organizes.
Lesson #17: Make sure renovations were professionally done
Paying close attention to the aesthetic details of a home is just as important as the structural details when going through an inspection. Oftentimes, do-it-yourself remodelers looking for a quick fix use low-quality materials that turn into a problem for future homeowners. They key is to make sure any renovations were done by a professional contractor using quality materials that are meant to last. Inspecting details up front is very important so you don’t find yourself shelling out even more cash later on.
Lesson #18: A creative bid strategy helps ensure a good deal
Scot and Leeah used a unique approach to get a great deal on their Denver, Colo., home. By first making an offer of $300,000 on the home, then adding a contingency that they would pay $1,000 over any other competing offers up to a maximum price point of $329,000, the couple could guarantee they got the house with minimal dollars spent over the highest competing offer. Although unconventional, a creative strategy like this can be very effective in today’s market, especially when there are competing bids for the property.
Lesson #19: Don’t overlook the landscaping
Updates to the exterior of a home can add up just as quickly as the interior. If you aren’t looking to spend much more on the details once you have found a home, look for a property that already has the amenities and the landscaping that you desire.
Lesson #20: A higher price point might save money over time
After making interior and exterior renovations, many homeowners find that their budget has been stretched way beyond what they initially wanted to pay for a home. For this reason, it can be smart to adjust your price point a little to help you save money over time. By paying a little more upfront for a home that has all of the upgrades and extras you want, you won’t have to worry about paying for them down the road.
Lesson #21: Low-balling doesn’t always pay off
Justin and Sarah bought their first place in Scottsdale, Ariz., but before they finally closed the deal, they had to endure the discouraging feeling of being outbid or rejected multiple times. From the beginning, Justin and Sarah were adamant about not spending more than $240,000. Unfortunately, by looking for homes at the top of their price range but making lowball offers -- plus asking sellers to contribute to their down payment and closing costs -- their offers looked weak and were rejected, outbid or ignored every time. If you find yourself incurring multiple losing bids, a change in strategy is in order. By giving a little bit, you can get a lot in return.
Lesson #22: Change a bid strategy that’s failing
Tweaking your bidding strategy can make the possibility of getting the house you want much more realistic. Justin and Sarah learned that you have to be smarter, faster and closer to the original asking price in order to put in a competitive bid. The offer should be strong enough to at least hit the seller’s base price. The key to remember is if you would like the sellers to do something for you, such as contributing to closing costs or the down payment, then you need to get as close to their asking price as possible.
Take some time to save money for a down payment before buying a home. Your offer will look stronger to the seller, and you’ll have more leverage during negotiations.