The decision to buy a new home was easy—proceeding with the purchase is more complicated. There are many steps to the process and, to the first time home buyer, it can be overwhelming and confusing. However, if you do your homework, you'll be able to find a home that fits within your budget and that you can enjoy for years to come—all without too much difficulty. At the end of the process, not only will you be a homeowner, you'll have also made a good investment and added a great asset to your financial portfolio.
To make sure you're prepared for the financial realities of home ownership, ask yourself the following questions:
Use your answers to these questions to honestly assess whether now is the right time for you to make a purchase.
You'll also need to create a budget that takes into account expenses that you'll incur for the maintenance of your new home—there won't be a landlord to call and there are always unexpected issues that arise. Additionally, you may want to allocate funds for decorating and furnishing your new home—these expenses can add up quickly, and you will want to be prepared.
The amount you can afford to spend on your purchase of a new home is dependent on several things: the current interest rate for home loans; your annual income; your monthly expenses; the amount of money that you're able to put down as a down payment; and your credit rating. To better understand what type of home is within your price range, it's recommended that you meet with a lender before you begin your home search. The lender may be able to pre-qualify you for a loan of a certain dollar amount—this will give you parameters within which to search. It'll also save you both time and emotional energy—it can be devastating to have your heart set on a home or neighborhood, only to later learn that it's out of your price range. Additionally, if you're pre-qualified for a mortgage, you'll have more leverage when negotiating the final purchase price of your home.
In real estate, it's location that counts! If you're new to the area where you're looking for a home, make sure that you really explore the surrounding neighborhoods. To be certain that you have a full picture of the area, it's recommended that you drive through many different neighborhoods—at varying times of day, and during both weekdays and weekends. Take note of what you see around you and ask yourself if this is a neighborhood where you'd be comfortable living. What's the traffic like during rush hours? Are the streets and sidewalks well illuminated? Do you see people walking at night? Asking these questions will help you assess the safety of the neighborhood. Additionally, take inventory of what your priorities are—schools, shopping, public transportation, parks. You'll want to be sure that the house you buy is located in an area that matches those aspects of life that you value.
Define Your Ideal Home
What kind of home are you looking for? To ensure that you are satisfied with your purchase, and that the home you decide to buy fits your unique needs and desires, it's recommended that you define what your ideal home looks like. Ask yourself if you value a home with character, or a more maintenance free home. Older homes typically have lots of unique characteristics, but may need repairs—newer homes typically require less upkeep. Are you interested in a condominium or townhouse? These types of structures tend to be less expensive than single-family homes, and an association is usually responsible for exterior maintenance. However, these benefits come at a cost—townhouse and condominium living means being very close to your neighbors, frequently without a backyard and garage. The more you're able to define what's important to you—where you're willing to compromise—the more easily you and your real estate agent will be able to locate your dream home.
Make an Offer
Did you know that unless your real estate agent is a "buyer's agent," he or she is working for the seller, not for you. This means that it's up to you to look out for your own interests. When you've found a home that suits your needs, ask your agent for sales figures of comparable homes in the area—then take a look at these houses. You should assess the condition of the homes—do they appear to be in better, worse, or similar condition as the home you're considering purchasing? If you're thinking of making an offer on a condominium or townhouse in a neighborhood governed by a homeowners' or condo association, request a copy of the association's documents to review before closing. Many homeowners' associations have restrictions on what's allowed in the neighborhood—pet size, permissible paint colors, and garden decorations are just a few examples. You will be well served, and avoid unpleasant surprises, by educating yourself about any such restrictions before making an offer.
Get a Home Inspection
A home inspection of the property you're considering for purchase is an absolute must! Not only is it in your best interest, it'll also likely be required by your lender who wants to ensure that he or she isn't loaning money to you to buy a home that's in need of costly repairs.
Consider carefully the inspector you hire. It is important that this inspection be conducted by an un-biased third party, so you should use the services of someone other than the inspector recommended by the seller's real estate agent—there may be a conflict of interest. A seller's real estate agent has an incentive to make sure the sale is finalized and may suggest an inspector who overlooks potential problems.
A home inspector will inspect the property that you're considering, point out any defects or areas of concern, and write a report detailing his or her findings. This report will assist you in determining what, if any, repairs are needed, and may help you negotiate a more favorable deal with the seller. Based upon the findings in the home inspection report, and depending on the terms of the contract for sale that you've signed, you might have the following options: back out of the contract; request the seller make certain repairs; or negotiate a lower sale price to compensate for repairs that you'll have to do.
You Need an Attorney
When buying a home, you'll need someone to represent you at closing—the formal legal process by which you acquire title to your new home. Before signing a contract to purchase a home, ask your attorney to review the document, as well as any accompanying association documents. If you aren't familiar with an attorney who can represent you, ask your accountant or financial advisor for recommendations.
Take Your Time
If you follow the process and a sale doesn't materialize, don't get frustrated—consider it a learning experience. You can take what you've learned and apply it to your new search! So, the next time you find another dream home, you'll have a much better likelihood of signing an agreement of sale for a home that doesn't need repairs, is in a desirable neighborhood, and fits your budget. It will happen—just be patient and persistent!
Updated: January 1, 2013
This article is for informational purposes only and is not intended as an offer or solicitation for the sale of any financial product or service or as a determination that any investment strategy is suitable for a specific investor. Investors should seek financial advice regarding the suitability of any investment strategy based on their objectives, financial situations, and particular needs. This article is not designed or intended to provide financial, tax, legal, accounting, or other professional advice since such advice always requires consideration of individual circumstances. If professional advice is needed, the services of a professional advisor should be sought.
© 2013 Wilmington Trust Corporation.