For most of us, buying a house is the biggest investment we’ll make in our lifetime. As Americans, we generally have around 40% of our wealth locked in to our homes, so it’s easy to see that making sure you buy the right property for your individual needs is pretty important. Here are some tips to keep in mind when you start house hunting.
Think of the Long-Term
When we buy a house, it’s for the long-term at the very least. Most Americans who put their houses up for sale have lived there for at least a decade, so it’s important to have a similar mindset when you start your search. The properties you look at shouldn’t just suit you right now, they should have the space and equipment (or the potential) to keep you comfortable for the next 5-10 years. It’s a good idea to think about what you’d like your live to be in the next 10 years or so to help you build an idea of the perfect property for you. Are you planning to get married or have kids? To stay in the city or live in the suburbs?
Buy as an Investment, Not Speculation
Yes, your home is an investment that will hopefully grow in value over the time that you own it – but that’s not all it is. Buying simply to grow your money isn’t a guaranteed return, and the last thing you want is to be miserable living there just because financially you thought it was a good bet. Always balance your investment plans with a focus on improving your life, and make sure the home you buy is one you’ll love living in too.
Set a Budget and Stick to it
In the end, this is the single most important factor when buying a property. The price of a property depends on many factors – location, access to amenities like schools, transport links, restaurants and recreational areas – so it’s important to develop a realistic idea of where you can afford to buy and what’s important to you in a home.
As part of your budget, aim for a 20% down payment as this will help you get more competitive rates from lenders. It also makes your offer more appealing and reduces your personal financial risk in the event that the market dips or interest rates go up.
A good guideline for deciding what you can afford is to allocate no more than one-third of your after-tax income to repay your loan. This is a manageable amount for most areas and allows you some flexibility and comfort in terms of your monthly accounts. Remember, you’ll have additional expenses as a homeowner, like insurance and maintenance costs, so this buffer is important to preventing financial stress.
Get Pre-Approved
The pre-approval process is similar to the mortgage application process – you have to get all your documentation in order, from your income, debt and credit to getting to know the credit options that are available to you. It’s a fair amount of work but it puts you more firmly in the driver’s seat when it comes down to making an offer. Not only will you know exactly what you can afford and what your expenses will look like based on the options available to you, you’ll also look like a reliable and attractive buyer.
When you’re going through the pre-approval process, don’t be afraid to comparison shop for different mortgage options. From different yearly terms to fixed or changeable interest rates, there are plenty of different loans available with different pros and cons. Even a half of a percentage point difference will add up to thousands of dollars in the long term, so it’s worth it to take some time and consider different lenders and loan types.
A good loan should cater to your specific requirements, have a competitive rate and be from a lender who has a good reputation for timely closing and great customer service. Remember, you’re going to be partnering with them for many years to come!
Don’t be Afraid to Walk Away
Buying a home can be a stressful and high-pressure experience – and an emotional one too! If a seller refuses your offer, rather be prepared to walk away from the deal than throw your plans away and overreach on your budget. Ultimately, it’s not worth it to put yourself into years of financial stress. The same is true if the home you like doesn’t pass inspections or the timing doesn’t actually suit you – remember to hold onto your core plans for the type of home you want, and don’t settle. Even if it takes a little longer, you’ll find the perfect home at the right time for you.
Good luck and happy house hunting!