8 Things to Know Before Buying a House | Molly’s Money
We’re back for another edition of Molly’s Money – a series where I tackle your personal finance questions and issues, getting out of debt questions, and other general money advice!
+++
Buying a house is like, kind of a big deal. It’s one of those things that I really feel like can trap you into a mound of internet listings and paperwork VERY quickly. While I, personally (and admittedly), haven’t bought a house on my own yet, we refinanced our house last year and so I’ve at least experienced a similar paperwork process. It turned out to be wonderful cause as per his pre-estimation of the house he got exactly the right price which he had calculated.
Plus, as our family has grown, we have been talking about what our next steps will be when we eventually need to upgrade. We’ve already grown out of the house we’re living in! 🙂
So, for anyone who might be a first-time home buyer, there’s A LOT to consider and A LOT of information out there.
What are the things that you REALLY need to know before buying a house? I even asked my husband what are the things he WISH he would have known before buying this house.
And we compiled a list. I thought that since I write about money, saving money, getting out of debt, investing, etc. in my Molly’s Money series, I figured this would be the perfect little mini-series within the series – a series on home buying (for the single OR married person!)
Now, there’s A LOT that goes into buying a house (obviously), so this isn’t going to be the exhaustive of all exhaustive lists… but it’s a good start.
I also will be addressing some of the more down and dirty details on things like mortgages in another post (there’s no way I could cover all those things in this post alone).
8 Things to Know Before Buying a House
1. Get a good realtor.
This is like the most important of important things. If you have a crappy realtor, the process can be much more difficult and can potentially, LITERALLY, cost you in the end. Hire a professional.
Get recommendations from friends and family for GOOD, professional realtors in the area. You want someone who has your best interest in mind and will represent you in a way that you want to be represented – they know your interests and they know what you want.
It’s also important that this person isn’t just good at their job, but that you LIKE them. The home buying process can be long and tiresome and you want someone that you will actually ENJOY working with.
2. Get a good mortgage professional.
This comes AFTER you hire a good realtor because you want your realtor to refer you to a mortgage professional that they trust and that you can trust. Often times your realtor will have the connection that you need or a relationship with a mortgage professional that will ultimately work with you in the best way possible.
You want a mortgage person who is familiar with the local real estate market and really understands the area. Since the financing of your house is obviously a large part of the buying process, you know that a referral from your realtor will be a good one – because you BOTH have a serious financial stake in it.
But at the same time, if you’ve already picked out a mortgage person that you trust and want to work with, don’t feel pressured to use the person that your realtor recommends just because you want to be polite and take their recommendation.
3. Understand the difference between using a realtor vs. a for sale by owner home.
If you are looking to buy a home that’s FSBO (for sale by owner), just use a little extra caution. Someone that is selling their own home might not totally be up to speed on all the updated laws regarding disclosures – so they might fail to mention something about the home that could be a deal breaker.
You can definitely get a good deal on a FSBO home, but just be careful. One thing you can do to protect yourself with a FSBO home is ask them if they will be willing to pay the 3% buyers agent fee – that way a whole lot less will fall through the cracks in the buying process and you’re protecting yourself against any headache later.
If you are able to put 20% down when you close, you avoid paying what’s called PMI or private mortgage insurance.
In a nutshell, PMI is a fee that protects the bank if you’re unable to pay for the house. So PMI is basically an extra cost that you’re required to pay but it doesn’t provide any benefit to you–it’s only for benefit of the lending institution. I’m going to delve more into PMI when I do a post on the mortgage side of things in the next few weeks.
5. Know what you can afford in a home.
Your MONTHLY mortgage should be no more than 1/4th of your take home pay. Know how much you have saved for a down payment and what your mortgage would be after that.
Do the math. If your mortgage would be more than 1/4th of your take home pay each month, you probably can’t afford the house. Being house poor is no fun.
6. Put yourself in a position where you don’t have to be in a hurry.
If you’re in a hurry to buy a house, you give the seller and the selling realtor a whole lot of leverage over you – and that works to your disadvantage. BUT, if you’re in a place where you can easily walk away from buying a particular house, then the ball is in YOUR court. Take your time.
7. Get a good home inspector.
You do NOT have to use the home inspector your realtor recommends. And DO NOT, I repeat, DO NOT base your inspector on price. For the love of all things good, DO NOT get a Groupon or Living Social for a home inspector.
Spend the money on a GOOD, reputable home inspector – trust me, it will save you TONS of money in the end. And always give preference to a home inspector who invites you to come along with them while they inspect the home. My husband spent the entire 3-4 hours with his home inspector before he bought the house so he could know EXACTLY what issues there might be and be able to ask questions along the way.
8. Do AS MUCH homework as you can ONLINE before you go to actually look at stuff.
This way you aren’t wasting your time or the realtor’s time. Research things like the neighborhood, crime in the area, pictures of the home, look at a satellite view, etc. Get as much information in your book as you can ahead of time that way your time with the realtor looking at houses is actually productive and worthwhile. You don’t want to be asking questions about the schools or the neighborhood while walking around the kitchen. That’s information you can learn before you look.
So, there you have it, 8 things to know before buying a house.
Hi Molly! I’m new to your blog today, and I’ve read almost everything. Anyways, I do have a question- do you know when the appropriate time to work with a realtor? My husband and I are looking to buy in 2015. Any thoughts?
When you say 25% are you including taxes insurance and pmi? Or just the mortgage?
Do you mean 20% down? Is that what you’re referring to? The 20% down is just the down payment on the mortgage to avoid having to pay PMI. I’m not including taxes or anything like that… just the mortgage.
No. Sorry, you referred to it as 1/4. Not having a mortgage that totalled more than 1/4 of your net monthly income. I was wondering if that includes taxes, pmi and home owners insurance. We currently live well below our means as i bought this house by myself. Now we have two incomes, planning a wedding and a family (someday). We wanted to buy a house in a few years when we have a sizeable down payment, but with all this hype about interest rates going up we are considering doing it now instead. Most of the online calculators say we can afford much more than i think we can.
ohhhh i see what you’re asking now! sorry for the confusion!! i would say yes to factor in all of those things into the 25% of your income. and yeah – those online calculators tend to over estimate what you can afford. the rise of interest rates is one of the reasons my husband and i are considering moving now.
Great tips for first time home buyers and good reminders for anyone who hasn’t moved in many years working with good professionals throughout the process will reduce stress during what can be a stressful time. Rely on those with experience to guide you through.
Save as much as you can for the downpayment so that you can have a more affordable mortgage. While it is tempting to buy that big house, consider the cost to maintain it. Buy the house your can afford.
Having owned 3 houses and 2 as a single parent and gutting one for renovations I offer the following;
1. the $80 000 house you are looking at is actually $160 000. Is it worth it? How do I get this number. Add the interest of the loan to the principal.
2. Make you first monthly payment the day you take your loan. It will save you 7.5 years of interest. Yes this is a fact. You are boring $80 000 for 30 days if you wait one month to make a payment.
3. Make 13 monthly payments over a 12 month period. Diving the 13 payments by 12 makes it manageable and all the 13th payment goes to principal.
4. Every time you get paid pay your mortage. For example when you get paid twice a month divide your monthly mortgage in half and pay half each pay period. Why? Because again, you are reducing the principal each time you make a payment. Why pay interest on your principal amount when you don’t have to?
5. Disipline yourself to pay an extra $20 each time you make a payment. As time goes by increase it by $5 as often as you can.
Why do I say this from experience. I owe one house clear and will pay for the second house in 6 years and own 2 houses clear title when I am 56. Discipline is everything. When you lose your job you can return to the original loan amount and feel like you are actually ahead. When I sold my first house I was 7.5 years ahead on my mortgage so I had enough money after paying off a significantly smaller principal to pay for the second house cash. Invest sweat equity. You will be amazed what you can do yourself. Be patient with yourself. Practice makes perfect. I have since remarried and we are truly blessed.
GREAT tips to add to this article. I’m 27 and treat my car payment this way. I’m “shopping” for a house currently, and will apply the same principles to my new home! Thanks!
We want to buy a house so badly but I know right now isn’t the best time for us. These are great and very helpful tips.
Good points but I have to say that having 20% downpayment and mortgage being 1/4 of income is a good rule of thumb but not always applicable/harder to achieve in higher cost of living cities.
Having owned a home (well, paying the bank to live in my home) for almost 10 years, I’d echo all above but add something to the beginning. You don’t HAVE to buy a home. Renting isn’t bad.
I’m single and really hate the responsibility of homeownership all on my own. It causes a lot of anxiety. Every noise sets me on edge wondering how much it will cost and who can I trust. There are many days I considering selling my home and renting again – but that wouldn’t be wise financially.
I’m on my second home and the bathroom will be gutted next week. I’m excited for the end result but so scared for the process and what MIGHT go wrong. Those are the times I just want to call a landlord.
Yes, don’t rush and a good realtor is gold. I’ve had two and the second showed me what a good realtor does and who they are and I’ll never do it without a good one ever again.
Great post!
The only thing I would add is if you are buying a condo or townhouse, read the minutes of the potential HOA like a hawk. Our first place, a townhouse, the HOA had no money in reserves and needed to make repairs. In the FIRST YEAR we were slapped with $9k in “emergency” repair bills. It sucked.
Great post! I wish we had known to pay attention more to location than just the house itself. We should have considered resale or rental potential, but as first-time buyers all we wanted was the ‘perfect’ house and yard. We didn’t even pay attention to the brand-new construction 2 blocks away. As a result, we got beaten out by new construction that was selling for lots cheaper and it totally killed the value of our home!
This series is so interesting and helpful, Molly. I think you are the sweetest, most down to earth blogger and your posts about real life issues show that you care about helping people from your own experiences.
Great post Molly! We bought our house a little over two years ago and I totally agree with all of your tips. Definitely having a great home inspector is key! You don’t want to spend all this money on a home and later find out this and that are broken and need to spend more money on it.
xo, Yi-chia
Always Maylee
Great post! Thank you for sharing your (and your husband’s) experience!
We have bought 5 houses and have bought from a FSBO and then sold on our own. It is about being educated. Also it is important for first time home buyers to consider added expenses such as mowers, rakes, shovels, landscaping expenses and then the occasional water heater going out etc. We have seen home owners be house poor and also not keep up their property. I feel this is rude. The staining of a deck and mowing a yard is part of being a home owner. If you do not want to take the time to do these things, stay in an apartment. Also if one has a dog, a fence can be necessary and making sure they do not bark a lot. Good post Molly!
Yes! This is a great post, Molly! We are actually in the process of buying a home (we close next Wednesday!) and it is quite overwhelming if you don’t know what you’re doing. Thankfully I went to Real Estate school and have some experience, as well as we have an amazing Realtor… I totally agree with your “1/4 of your income” advice! One big thing to note is that lenders will always quote you on a mortgage for MUCH higher than you should be spending. Our lender said we could get approved for a lot higher than we thought we could afford, but that made our monthly payment skyrocket and we just didn’t want to do that! So we opted for looking at a price range that was based solely on how much our monthly payment would be.
All of these tips are so great. Thanks for sharing and good luck as you start the process of buying a bigger home!!
Thank you for posting this, Molly! I probably made over half the mistakes you described in this post. We were in a hurry to find a home shortly before getting married. In hindsight, we should have eaten the high costs of renting for a short period of time and then took our time with the home-buying process. I let the cost of rent scare me and I shouldn’t have done that. I’m also not sure we did a good job with #1 and #2.
Our home inspector wasn’t very good at all. They didn’t catch all sorts of things which ended up costing us big time. Serious things like water damage were missed. Now I have to figure out how to fix a leaking roof without going into debt. I hope it will be a minor job and something I can do myself.
I’ll spare you the whole story, but it’s just turned into a big, expensive mess. We’re praying that we’ll be able to sell it and move on. That’s what we’re fixing to do. The good news is that it’s dual-zoned (residential and commercial), so maybe some business would buy our place, fix it up, and use it accordingly. That happened to one of the properties across the street from us.
Anyway, I don’t think I can add anything to your list here. I think you did a great job covering the major areas of concern. I wish I could say that our first home-buying experience was a good one, but I also know that there’s a purpose behind this ordeal and that God works all things for the good of His people (Rom. 8:28). I’m glad that we can use your valuable advice here once we get to that point of buying our next home! 🙂