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Homeownership is one of the most rewarding endeavors that an individual can pursue. However, it can also be a significant source of stress and frustration. Putting in the effort to gather some preliminary information before you start the homebuying process will put you in a great spot for success. The decision itself to buy, which industry professionals you choose to work with, determining a budget that works best for you, managing expectations, the list of decisions goes on. Give yourself some peace of mind by doing a bit of homework before committing to homeownership. Here are 5 things to consider before buying a home to get you started.
Rationality rules the world. For some people buying a home makes perfect sense and is an easy decision. They are ready financially, in a good spot in their career to plant some roots, willing and able to take on home improvement projects, etc. For others, however, renting may be the better option. Buying and renting each have their own pros and cons and it will be up to you to determine which option is best. This will typically come down to fundamental life concepts including marriage, potential for raising children if that applies to you, proximity to family/friends, budget constraints, or whether you are willing and able to relocate. All of these decisions will come into play, but it’s crucial that you keep the long-term impact of buying a home in mind as well.
Investing is the long play. Buying a home is not just a short-term decision, but more importantly a long-term venture. The annual average home appreciation rate since 1987 through July ’23 has been 4.8%. That is phenomenal news for anyone looking to build long-term wealth given the number of options available to utilize home equity. While homeownership is not for everyone, for many of us it makes sense to prioritize purchasing a home as soon as we are in a sound position to do so.
2. Let’s Talk Money
Knowledge is power. Some of the most overlooked aspects of purchasing a home are the costs involved that are not named “Purchase Price”. Having insight and understanding of these additional expenses will keep you from tumbling towards financial oblivion before you make your first mortgage payment. You will likely spend thousands of dollars before you even sign your name at the closing table. Some typical upfront costs involved in buying a home include earnest money deposit, home inspection fee, and appraisal fee just to name a few. Once you execute the closing and become a homeowner, there is no more relying on your landlord to cover necessary maintenance or repairs to your home, these ongoing expenses will now be your responsibility.
Budgeting simplifies spending. How much can you afford to spend on a home? This question is different than “how much are you pre-approved for?”. Obtaining a pre-approval for a home loan is essential before you even consider looking at properties, it is absolutely step number one. However, even more important is deciding how much you are personally willing and able to spend on a new home. Determining your price max that fits your monthly budget will keep you from wasting time on properties out of your price range and mitigate financial stress down the road.
3. Give Yourself Plenty of Time
Procrastination induces panic. Start the homebuying process early to give yourself ample time to make decisions and for the transaction to unfold. From start to finish, buying a home takes a lot longer than it might appear on the surface. To avoid feeling overwhelmed and potentially missing crucial deadlines, such as an expiring lease agreement, it is wise to give yourself at least 6 months to complete the entire homebuying process. On average, it takes roughly four to five months to go from beginning to end in the homebuying journey. Between obtaining a mortgage loan pre-approval, finding a realtor, solidifying your home search criteria, shopping for that home, navigating the current market conditions, getting to the closing table, packing, and moving, your schedule will fill up quickly.
4. Are Your Expectations Realistic?
Logic and reason prevail. When considering buying a new home it is essential to keep your expectations in check. There is no such thing as the perfect property in the perfect location for the perfect price with no defects. There will be compromise involved and it is up to you to decide what you are willing to compromise on. Keep your dealbreakers in mind but be rational. For example, it may be beneficial to overlook a window that does not latch properly if the home has a brand-new roof that is going to last the next 30 years. In other words, be picky, but don’t be ‘too picky’. You’re purchasing a very expensive asset, so I would never recommend settling for something you aren’t sure about, however homeownership comes with certain compromises that are inescapable, especially in a seller’s market.
5. Carefully Choose Who You Work With
Assemble your entourage. You will need a team comprised of a trusted realtor, loan officer, financial advisor/accountant if applicable, home inspector, and insurance agent (you can lean on your realtor and/or lender for recommendations for home inspector and insurance agent if needed). According to the National Association of Realtors (NAR):
The real estate industry can be tricky and scary to navigate. The best way to mitigate this is by having the right team of professionals on your side.
These are the people who you will be going into proverbial battle with, choose them wisely. You will be spending hundreds of thousands of dollars, do not compromise on your representation. Also, they are the experts. Your team of advisors will be aware of current market conditions, loan programs that suit you best, what to do in unfamiliar situations, how best to navigate contract negotiations, all while keeping your best interests in mind. Your home inspector will ensure that your home is safe and free of any major defects and will also be a key factor in contract negotiations if there are defects that need to be addressed. While this is the last of the five considerations that I’m writing about, it may be the most important step to solidifying a successful home purchase.
So, Basically..
Homeownership is one of the biggest decisions that one can make, and it is likely to have a massive impact on your future. To make sure that impact is positive, it’s important to keep these concepts in mind before taking the next step towards purchasing a home. Consider your current lifestyle and where it’s headed, get your finances in order, start early, cultivate realistic expectations, and craft your team of real estate professionals carefully. There are several other factors that come into play when purchasing a home, however if you’ve checked these five boxes before jumping in you will be well-prepared and can sleep soundly knowing you’ve done your due diligence.
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Sources:
· Orchard
· NAR