Buying a home will be the most expensive purchase you make in your lifetime. It's terrifying and exciting at the same time. Be smart. Be resourcefull. And, most of all, don't be afraid to ask questions if your don't understand something. While this is an exciting endeavour for a first time homebuyer, don't be blindsided by the final sticker price.
So here's the thing, in the midst of all of the excitement, it's easy to become blinded by beautiful kitchens, granite counter tops, hardwood floors, swimming pools and fenced-in backyards. When you are looking at homes that are completely perfect from top to bottom, you begin to rationalize a more expensive home than you had originally thought for. You tell yourself, "This house is perfect for me; it's worth $50,000 extra dollars for me to have a house with enough space in a perfect location," or "We were planning on spending a little bit of money on painting; we can spend $50,000 extra on this house because it doesn't need any work." Rationalizing the added spending.
We've compiled 5 tips to help you obtain your Dream Home without creating a nightmare future.
1. Don't Overspend!
You need to know exactly how much you can afford before you even begin to look at any homes. Check out our calculator tools to help you get some rough estimates of how much of a home you can realistically purchase. Be sure to factor in your own personal financial circumstances, such as: How much is your current rent payment? Did you meet that payment each month with ease, or was it a bit of a struggle each month? The payment you can afford right now is a good indicator of what you'll be able to afford in your new home.
Ok, so now you have a sense of what you think you can afford to spend. Fill out our Pre-Qualify form to have a trusted lender contact you to determine how much of a mortgage you may qualify for in obtaining your Dream Home. Also, keep in mind that it's always better to lean towards a lower amount, rather than a higher amount. You do not have to use the entire amount you're pre-approved for. Once you know how much you have to work with, then and only then should you start your house hunt.
2. Don't Count on Future Earnings or Raises!
When assessing how much you can afford, use only what you are earning today. That is, the income that you (and your spouse) earn from stable sources. If you are expecting a big promotion, don't base your mortgage payment off of the "potential" salary increase. No one can predict the future, and although you may very well be in a better financial situation a year down the road, there is no guarantee today.
3. Those Other Costs!
By now you are sick of me telling you what to factor in and what you should expect to have to pay. You just want to find your perfect home. Well, we'll get you there. But first, let's make sure you get exactly what you want and can afford. For instance, when you rent, you normally have one payment — rent — and then maybe renter's insurance, which is optional, and some utilities. When you buy a house, you have a mortgage payment, Homeowner's association fees, depending on where you live and the amenities and services offered.
Homeowners insurance and property taxes very based on your geographic location. Depending on where you are in Pennsylvania, your homeowner's insurance rates and taxes will be determined by various factors. Also, depending on when in any given month you close on your new home, you'll have prorations of taxes and interest to pay in advance on your new mortgage. It's always better to close toward the end of the month.
That's not all! If your down payment is less than 20% of the purchase price, you may end up paying an additional cost — mortgage insurance (also know as "PMI") — which is insurance for the lender in case you default on your loan. At the end of it all, your $950 per month mortgage payment can easily turn into a $1,400 per month house payment.
4. Failing to protect yourself with home inspections, contingency clauses, etc.
During your house hunt, you may find a house that looks great at first glance. Then, as you walk through a few of the rooms, you notice problems with the house — maybe the floors squeak or the kitchen island is off-centered. After walking through the house, you come to realize this house is in questionable shape.
Home inspections provide you with some protection. The inspector will be able to find problems that you can't and you want to know these problems before you sign on the dotted line and make the biggest purchase of your life. Sellers have to report to you of known problems. However, what if they don't, or if they lie? What then? Home inspections will help to a certain degree in anything that may be visual or outside of your knowledge base.
Contingency clauses also offer added protection. A mortgage financing contingency clause protects you if, for instance, you lose your job and the loan falls through or the appraisal price comes in over the purchase price. Should one of these events occur, the buyer gets back the money he used to secure the property. Without the clause, he can lose that money and still be obligated to buy the house.
Another important layer of protection, is title insurance. Homebuyers often deeply resent having to pay for title insurance: the $1,000 or so that it costs is usually the most expensive item on the itemized list of estimated closing costs that they get when they apply for a mortgage. Property titles are more complex than most people imagine. Insurance that secures them can be the best money a homebuyer will ever spend.
5. Stay Calm, Collected and Wide-eyed!
Some first-time home buyers can be naive and overly optimistic thinking nothing could possible go wrong. This is an exciting time to be a first time buyers, but be wide-eyed. If a home has a few problems, they view them as easy fixes and are unrealistic when it comes to the cost and time it takes to fix up the home. Some naive buyers will move to a neighborhood on the wrong side of town, forgetting that you can fix up a house, but you can't change your neighborhood or location without moving.
On the other-hand, don't be a paranoid buyer either! Paranoid buyers always believe someone is scamming them or taking advantage of them. They'll submit low-ball offers and then show frustration when they are consistently rejected.
If you are looking to purchase your first home, sell your existing home or looking for your dream home, look no further. The Realtors at Dream Homes PA, are all about your dreams and making them come true. We want to know what you want, so that we can help you get there.
We will provide you with highly qualified dreamweavers, also know as Dream Homes' Realtors. Whether your buying a home or selling a home, our team will make your dreams come true.
We understand the need to be informed and a part of the process. Our promise to you is that we will make a complex process simple and easy to understand so that your dream remains a dream and does not become a nightmare.
Don't hesitate, call us today at 610-841-9600, or contact us here.