5 Things to Know Before You Buy a House

Buying a house is one of the largest and most exciting purchases you’ll ever make. If you’re a first-time buyer, the process of finding and purchasing a home can seem overwhelming. 

However, there are many steps you can take to ensure the process goes smoothly. Here are five things you should know before you buy the home of your dreams:  

    1. Organize Your Finances

Because buying a house is such a large purchase, it’s wise to get the rest of your finances in order before you start shopping. 

Think about your income and how much you can afford to spend on a house per month. Then, check to see if that number is reasonable for mortgages in your area. If not, you may need to raise your income before investing in a home. 

You should also check your credit score before you start house shopping. It measures how you handle debt and shows potential lenders you will pay them back. You can get a home loan without a credit score, but it requires more paperwork, and you may have fewer options for lenders.   

    2. Work With a Realtor

First-time home buyers may be tempted to shop for homes themselves so they don’t have to pay a real estate agent. However, in most cases, it’s the seller and not the buyer who pays the commission.

Even if you pay some of the fees yourself, you should definitely hire a real estate agent. They have experience with the housing market in your area and can help you find exactly what you’re looking for. They’ll also communicate with listing agents to ensure you get a good deal on your home. 

Agents generally ask for 6% of the total purchase price, so their commission varies depending on the number and value of homes they successfully sell. When hiring, you will sign a listing agreement that includes the length of time they’ll work with you and how much you’ll pay them if they help you find a house. 

You can negotiate these numbers, but remember that a good agent is well worth what you pay them. You can calculate the total amount you’ll spend by reading the fine print on your listing agreement and doing some simple math. 

    3. Talk to a Mortgage Lender

Most families looking for a home will need to take out a mortgage. You will need to talk to a mortgage lender and get preapproved for a loan before shopping. This doesn’t require a commitment, and it means you’ll know more accurately how much you can spend. 

Mortgage lenders are different from mortgage brokers. Brokers are the people who find lenders or loan institutions. They can save you time and stress by talking to lending institutions for you and handling paperwork. They also work to save you money by reducing mortgage fees. 

Lenders usually pay broker fees, but sometimes this expense is covered by the borrower. Brokers are paid about 1%-2% of your loan amount and are valuable assets in your house search. However, even if you work with a broker, it’s still important to do your own research on lending institutions. 

It’s wise to consider multiple lenders before choosing one to finance your home. Make sure the company you select has licensed loan officers and offers a written rate lock agreement. This will ensure that after you agree on a specific loan price, it won’t change. 

     4. Budget for More Than the House

Your mortgage payment is only the beginning of what it costs to run a home. Other fees may include the following: 

• Utilities — electricity, water, Wi-Fi, cable
• Property taxes
• Homeowners insurance
• Maintenance

These additional costs are why it’s so important to have healthy finances and a savings account before looking for a home. Life can change quickly, so it’s essential to plan for emergencies and ensure you can cover your house payments without financial anxiety. 

You can lower costs by choosing not to have cable, monitoring your use of water and electricity, and saving house projects for a later date. However, there’s only so much you can do to reduce these costs while keeping your home livable. 

A reasonable estimate is that 28% of your total income should go toward housing costs. You can talk to your mortgage broker to get more accurate estimates of how much you should expect to pay each month. Remember, it’s always better to take out a smaller loan that you’re sure you can afford. 

    5. Remember to Negotiate

Much of the homebuying process is negotiable. However, good negotiation requires you to have knowledge, preparation and flexibility.  

You can set yourself up for success by building a good team, including a real estate agent, mortgage broker and reliable lender. Working with experts you trust will give you an edge as you look for your new home. 

You can also negotiate about more than just the asking price of a home. Other potential expenses include maintenance, agent fees and closing costs. Remember to take everything into account and arrange for the best overall outcome. 

Negotiating will work best if you’re flexible with your move-in date. Your best negotiation tool is the possibility that you’ll walk away and find a new house. Look at many options at once, and be methodical about how you evaluate each home. 

Take the First Step

Buying your first home can seem overwhelming, but it’s easier if you take one step at a time. The most critical parts of the process come long before you start looking at houses. 

Buying a house is unlike any other purchase you’ll make. When you decide to buy a new pair of shoes, you might research what you want, compare prices and then order the shoes. Purchasing a house requires a lot more time, expertise and negotiation. Putting in the extra effort pays off in the long run.