If you’re looking to buy your first home, congratulations! Home ownership offers one path to a secure retirement, knowing you’ll eventually own the property in which you’ll live out your golden years. Owning property also forms one path to wealth creation as your house grows in value over time.
That said, you do need to make sure you enter the process with open eyes. You don’t want to end up foreclosing on your new home within a year due to an unexpected financial crisis or an undisclosed flaw which turns the property into a money pit. Here are eight steps to take prior to putting in an offer in order to stave off buyer’s remorse.
1. Save an Emergency Fund
Emergencies happen to everyone. A sudden illness or a round of corporate layoffs can devastate you financially, especially if your family survives on a single income. Saving an emergency fund may not eradicate the possibility of losing your home due to circumstances beyond your control, but it does mitigate the risk.
Strive to save at least three months worth of income prior to hitting Zillow for the first time, preferably six. This way, should you find yourself in the unemployment line, you still can meet your mortgage payments and keep the lights on.
2. Pay off Debt and Don’t Open New Accounts
Your debt-to-income ratio determines whether you qualify for a mortgage and influences the interest rates you pay. The more debt you pay down prior to applying, the less lenders require as a down payment. Plus, you’ll save a bundle over the life of your loan.
Think you can’t qualify due to student loan debt? Think again. Some lenders will work with you if you defer or forbear your student loans or qualify for income-based repayment.
3. Save for a Down Payment
You do not need to save 20 percent down payment unless you want to avoid paying for private mortgage insurance. However, the more you do save, the less you pay over time.
Additionally, saving a substantial down payment gives you more negotiating power at the table should you decide to make an offer. A seller will entertain an offer with 10 percent down more seriously than one offering less. You also have leverage to offer to absorb some of the closing costs if the bidding grows neck-and-neck.
4. Research Buyer Assistance
Many state and federal programs exist to help first-time buyers realize their dream of home ownership. Before making your offer, research online and discover if you qualify. These can add tidy sums to your down payment or even eliminate the need for one altogether.
If you’re a teacher or public safety officer, for example, you may qualify for no money down loans in certain neighborhoods. Looking to buy a farmhouse with land in the country? A USDA Agricultural loan could lower your costs even if you never plant any crops or raise chickens.
5. Determine Contingencies Needed
Many sellers pay careful attention to staging their homes as 81 percent of potential buyers indicate such prep helps them visualize themselves living in the property more effectively. However, such careful staging can mask flaws at times.
You wouldn’t buy a car without kicking the tires, so when viewing a home, take your time. Look under the furniture for rips or stains in carpeting. Engage all your senses — if you smell cigarette smoke, you may need to repaint and recover floors in order to eradicate the odor. A musty smell may indicate the presence of mold, and if you can hear highway traffic zipping by and you’re a light sleeper, you may find future Zzz’s hard to find.
6. Think Beyond the Open House
Attending an open house gives you the impression of the property, but the neighborhood proves just as important. You don’t want to have to pack up and move in a few years when you decide to start a family if area schools are substandard, for example.
Talk to the neighbors. What do they love about where they live? What frustrations do they experience? For example, if your work places a premium on promptness but an Amtrak train track stands between your new home and the office, you risk irritating your boss if you get stuck waiting day after day.
7. Get a Property Inspection
A recent study by the National Association of Realtors® indicates 14 percent of home sales never get finalized due to problems revealed during property inspections. You need a home inspection to reveal hidden defects that cost you money down the road.
A home inspection ensures all appliances and other devices function properly. It includes making sure the HVAC system works as intended, the roof has no leaks and no structural problems like a crumbling foundation exist. Additionally, some lenders mandate termite inspections as a condition of final loan approval.
8. Budget for Incidentals
Finally, make sure to create a small budget for incidentals. Sometimes, moving companies lose needed items. Other times, sellers take things like shower curtains you find you need to replace. Strive to save $500-$1000 for such items.
Making Your Offer
Once you’ve completed the items on this checklist, you’re ready to make your offer. Best of luck to you in your new home!
AUTHOR: KACEY BRADLEY
Kacey Bradley is the blogger behind The Drifter Collective, an eclectic lifestyle blog that expresses various forms of style through the influence of culture and the world around us. Along with writing for her blog, she has written for sites like U.S. News, SUCCESS, Guides for Brides, Hotel Online and more!