8 Things I Wish I'd Known Before Buying my 1st House
I recently bought my first house - and by recently I mean Fall of 2017. It was an incredibly educational experience. For most of the process I was just winging it. I was extremely lucky in that I had a realtor who was able to guide me through the process and the legal madness. I also had a financial advisor that was able to explain the financial jargon to me.
I was lucky, so I decided to pass on some of my knowledge to you. There is a lot to learn - let’s begin.
1. Before you shop – get yourself a pre-approval letter
a. This is the first step you need to take when it comes to buying a house. Your financial institution of choice can pull your credit and examine your debt-income ratio, and then they’ll give you letter stating how much mortgage they’re willing to pre-approve you for. This is important as it helps you start your budgeting process, plus if you make an offer on a home they’ll want to see your letter of pre-approval to prove you can actually afford the offer you make. You don’t want to be looking at houses that you won’t be able to afford – it’s just a waste of time. Remember, just because you are approved for an amount doesn’t mean you have to spend that full amount on a house.
2. You can put $0 down if you’re military via the VA Loan
a. Active Duty and retired military are eligible to apply for a VA loan. It’s different than most loans in that it requires a 0% down payment, and some of your closing costs can be rolled into financing.
3. Painting is easy, and dirt can be cleaned
a. Just because the color is the living room is an awful mustard color, doesn’t mean you should write off the house. Light fixtures can be replaced to improve the lighting, carpeting can be replaced or cleaned if there are stains. A house may look dingy or dirty – but a little bit of Dawn and hot water can fix a lot. Are there enough rooms? Do you like the layout? Obviously, some of you aren’t looking for a “project house” – but painting can take less than two days and can give your house a facelift. Try to look through cosmetic flaws and it could potentially get you a better deal on a home.
4. You’ll have to supply Earnest Money with the offer
a. When you make an offer on a home, you’ll be asked to write a check (or wire) some earnest money, usually in the amount of 1%-5% of the purchase price. This money serves as “good faith” money, it tells the seller that you are serious about buying their home. They don’t want to waste their time on offers that aren’t serious, and it keeps buyers from making offers they aren’t serious about. This money will go towards the buyers down payment or towards closing costs. However, the buyer forfeits this money if they back out of their offer for reasons other than pre-agreed upon contingencies. For example, if an individual is unable to secure financing they can legally back out of the contract and get their earnest money back.
5. You’ll have to pay for a home inspection – and it will find things that need repaired
a. Odds are you’ll have to pay for your home to be inspected, you can shop around for one you think will best fit your needs. You’ll want to be there during the inspection or at least be able to go over the report with the inspector. After you get the inspection you can negotiate with the seller to have them fix the big problems. In my house, the roof was starting to sag because there weren’t enough rafters installed over the carport. I also had a handful of light fixtures that didn’t work, so the seller and I negotiated a deal where they paid to have the rafter installed and the roof repaired, but none of the light fixtures were repaired. It still ended up saving my money since the roof was just waiting to fall in on itself, but I didn’t quite get everything I wanted.
6. You’ll probably have to pay an Appraisal fee
a. Banks don’t like loaning you more money than what they can get back if you stop making payments for some reason. Therefore, the bank won’t loan you more money than what the house is worth (usually). You can ask for money to cover the purchase price of the home and to do any renovations you have planned – but it requires a few extra steps and VA loans aren’t eligible.
7. There will be Closing Fees
a. When you officially take ownership of the house – there is all sorts of legal paperwork that will need signed. Everything about the financial agreement, the transfer of the deed, and the agreement that after the home is yours you won’t go after the previous owner for any preexisting problems the home has. All those papers cost money, and the lawyers also cost money. In my experience, having about $6,000 on hand should cover these costs. If you don’t think you’ll have the cash for this, you can write it into the contract. You can ask the seller to cover some or all the closing costs.
8. You’ve made a huge investment – it will cost a lot of money, but if you do it right it will be worth it
a. Buying a house is no small thing. It can be incredibly expensive, but it can also be incredibly rewarding. There’s a chance you can’t sleep the first night after making your offer, there’s a chance you see the asking price on your dream home and your eyes try to bug out of your skull, but so long as you buy a house within your budget and have a good plan – you should be just fine. If you aren’t sure you have enough – its time to look at your budget.
When you finally do move into your new home, tell yourself “Congratulations, I did something amazing.” Because you have. Of course, there are other lessons to learn and this isn’t an all-inclusive list. Make sure you do your research before you start making offers on homes and ask your realtor all the questions. There is so much to learn in the realm of real estate and this list is incredibly short. I myself still have a lot to learn.
As always, I am but a work in progress.
Cheers.
