Do a quick search for home buying tips and you’ll find some of the most generic advice on the planet. It’s one of the most expensive purchases you’ll ever make. Do your homework before signing on the dotted line. Check the small print. Yada, yada, yada…
To be brutally honest, that kind of advice is not really all that useful. Either you know most of it anyway, or it’s so basic that you don’t need to be a rocket scientist to figure it out for yourself. In this guide, I’m going to try and add some real value by going just that little bit more in-depth on a couple of essential points.
Shift Your Mindset: Don’t (Just) Think of it as an Investment
The first step is to completely rethink the concept of buying a home as an investment. Some people think that buying is a no-brainer financial decision, the best investment in the financial playbook. Paying a mortgage is always better than renting, or so the saying goes. This leads people to do anything to get their foot in the door, literally and figuratively.
I’m going to tell you this: if you sound like the person above, get back to the drawing board and rethink your plans. Save up a little more first. I agree with The Simple Dollar’s Matt Becker; buying a home is like buying furniture, not stocks or bonds.
Get a Sizeable Down Payment
Don’t underestimate the importance of saving up a sizeable down payment. It just opens up a bunch of options that will make your life a whole lot easier going forward. Sure, if the market is slow and a bargain can be head, pull the trigger on a good deal. But if you’re opting for a bad loan just for the sake of getting on the property ladder, I’d probably call your agent and cancel the deal.
I’ve mentioned it before and I’ll say it again. Don’t sign up to a bad deal just to buy a property. People do crazy things to get that key to their dream home. This includes maxing out credit cards to make that downpayment or signing up for a terrible loan due to not having quite enough (small down payments almost always result in high-interest deals).
Crunch the Numbers on Home Ownership
Even if you haven’t touched math since high school, you’re going to have to deal with numbers when you buy a property. You need to think of all the important variables and moving parts:
· Prequalify. You need something concrete to work with, not just a potential figure. Brokers and lending institutions are numerous these days, so go online and investigate your loan options and get prequalified. This doesn’t bind you to a deal, but it allows you to start looking for a home, knowing you can get a loan.
· Utilities. Some homes are super inefficient when it comes to energy use. Ask for the utility bills first.
· Property tax. Another ‘little detail’ people don’t often think about.
· Association fees. Part of a condominium or exclusive neighbourhood? You may have to pay association fees, aka the silent financial killer.
· Home insurance. This can be super expensive and varies greatly from case to case. Run some quotes first.
· Maintenance. Some buildings, particularly older and historic ones, require a lot of upkeep. This can cost you thousands more per year.
· Calculate everything. I’m talking more than just what the little home loan calculators show you. Consider the insurance. Buffer money. Interest. Taxes. Cost to relocate. Everything I’ve mentioned here and more. Make the mother of all spreadsheets and crunch the numbers.
· Appraise and inspect. The sale price is not the same as the value of a home. You need to get a third-party to chime in and let you know what the property is actually worth.
The above will help you consider the cost of homeownership, not just your monthly payments (which is what most people do). Crunch the numbers and compare them to renting a house. Is buying still the good deal you thought it would be?
Think of Your Next Move
Most people will think about what they need now. But you need to be a few steps ahead to ensure you’re making a good investment. If you think this will be your ‘forever home’ (yes, it’s a cheesy term, okay?), then you’re good to go. Just ask yourself if that’s really the case first.
If you don’t think this is where you’re going to be settling down and bringing up your kids and meeting the grandchildren, stop right there. Think about how this supposed dream home can take your potential family expansion. Or better yet, consider whether it’ll be easy to sell should something happen (loss of a job, relocation, unexpected twins, you get the idea).
Figuring out whether your potential purchase is situated in a hot property zone is key. The absolute last thing you want is your new home to eventually turn to a big, heavy weight on your shoulders that you just can’t get rid of. Some people wait years to shift a property, leading to emotional turmoil and devastating financial losses. While you can’t always predict what the market will do, make an educated choice. Think very carefully before signing.
And there you have it, the steps you need to take before getting on that property ladder. So, can you print off this article and use it as your cheat sheet while house hunting? Not exactly, but it’s certainly a good starting point.
