The housing market might well be compared to a minefield located in the middle of a gold mine. You never know what you’re going to find once you start digging around: It might be a heap of gold, or it might be a boobytrap that drains your finances and ties you to a worthless property that will never be worth as much as you paid.
In order to avoid the undeniable problems of the housing market, we present a shortlist of tips that first-time homebuyers would do well to remember. At this point, we want to note that we will not be pushing the services of any particular company. Our only goal here is to help you get your money’s worth.
Tip #1: Start Saving Early
Once you have made the decision to buy a home, you should start saving right away. Even if you haven’t picked out a location yet, you should still go ahead and start putting some money aside. It might take years to save up all the money that you will need, so you can’t start too soon. We would recommend that you create a savings account for this purpose, and make sure that you don’t touch it for normal expenses. Short of a serious emergency, you need to hang onto every penny.
Tip #2: Cheaper Isn’t Always Better
When you are going through the home buying process, it might be tempting to just go with the cheapest option at every turn. Certainly, this is a method that will keep your costs to a minimum. However, this can actually increase your costs in the long run.
Unless you have a whole lot of cash on hand, you will need to get a loan to finance your new home. Most of the time, a buyer is expected to make a down payment comprising 20% of the home’s total value. However, there are many lenders that will let you go much lower than 20%. In fact, it seems that a 10% down payment is quickly becoming the norm. So, why are lenders suddenly being so generous?
The answer is that they aren’t generous. They know that your down payment is just that: A payment on a very large debt. If you pay a little bit less up-front, it is quite convenient. However, it just means that more money has to be paid back later. You see, these companies make most of their money by charging interest. It works like this: The smaller your down payment, the larger your principle (the main bulk of the debt). The larger your principle, the longer it will take to pay it back. The longer you take to pay it back, the more interest you will pay in the long run.
Tip #3: Look Out For All Those Hidden Costs
When you start looking at houses for sale, you should bear in mind that the price of the home is not what you will pay. At most, you might pay 30% of the market price. So, that means you only have to save up 10-30% of the price, right? Wrong.
There will also be closing costs associated with the sale, and these can add up to be a significant thing. You might have to pay extra for the lot on which your home sits, although this should be included in most home sales. You will certainly have to pay for at least one inspection (we recommend one general home inspection and one pest inspection) before the deal is closed. It would be very foolish to buy any home without having it inspected by a qualified professional.
Here’s a simple rule of thumb: First, figure out how big your down payment is likely to be. Don’t worry if it isn’t exact; you just need an estimate to get started. Just take the price of your desired home and multiply it by 0.20. The resulting number is what you will pay with a 20% down payment rate. Now, double that number, and you have your goal. Sure, you might overshoot your goal a little bit with this method, but that’s a lot better than coming up short.
Tip #4: See If You Qualify For A Government Loan
There are several types of home loans offered by the government. These include the FHA home loan, the USDA home loan, and the VA loan. There are many others, and these loans really are the best option if you can get one.
These loans typically have an extremely low down payment, an extremely long repayment term, and very low monthly premiums. Also, these loans are available to people with low credit scores, although most of them require that you at least have a score of 500.
Tip #5: Don’t Go Outside Your Price Range
A lot of people make the mistake of trying to live above their means. It is important to find a house that is large enough for your needs, and affordable enough to keep from breaking the bank. Yes, we all want to live in the house of our dreams, but you will have to balance those desires against the hard facts of reality.
Here’s where people run into trouble: They go out and buy a home that they can only just barely afford. They max out all their lines of credit and sell everything that they can stand to sell. At this point, they are thoroughly invested in that home, and they haven’t even moved a single box. They seem to think that they can just tighten their belts, live a little cheaper, and make up for the added cost of a luxury home.
The problem is that life just doesn’t work like that. When you burn the candle on both ends, you will eventually reach the middle and find that you have nothing left. To put it in a plainer way: You can live above your means for a while, but it will always catch up to you in the end.
Tip #6: It’s All About Location
This is an old business cliche, but it also applies to the process of buying a house. You see, the housing market goes up and down all the time, much like the weather. This process is different in every local area, much like the weather.
The price of a home is based on three things: Size, quality, and location. The first factor will be decided by the number of people in your home. The second factor is mostly about the materials used in construction. That third factor is very important because it is based entirely on demand.
For example, we might take a look at Chester County, Pennsylvania. It’s an idyllic area with a low crime rate, a lot of historical sights, a lot of interesting local culture, and traditions that stretch back to the founding of America. However, there’s just one problem: A lot of people want to live here, and that drives the home prices through the roof.
If you are looking for a good deal, you should look for good-quality houses in areas where most people don’t want to live. Let’s be clear, though: We are not advising you to move into a high-crime area because that can have horrible consequences. But, let’s say you find a nice house that is located in a semi-remote place. If you can deal with that remoteness, you can probably get a good deal on that house. That same amount of money wouldn’t get you much house at all in a high-demand area.
Tip #7: Consider Doing Your Own Repairs And Improvements
Unless you are buying a brand-new home, your new house will probably come with some problems that require fixing. At the bare minimum, you will need to do some maintenance from time to time. Now, ask yourself: Do you really want to pay someone else for all that?
You don’t have to be a home improvement expert to do some basic maintenance and repair jobs around the house. There are all kinds of books and websites that can give you ideas and guidance as you learn the basics of DIY engineering. We recommend that you look at some of the primitive building videos that can easily be found online. Whether you use primitive methods or not, these videos can give you a lot of good ideas.
When you choose to do the work yourself, you will still have to pay for materials, but you can save a lot of money and trouble. At the same time, you should be aware that DIY home repairs tend to be much slower. When no one is being paid to do the work, it could take weeks or months to complete. Still, those who aren’t in a big hurry should consider learning some things in their spare time.
Tip #8: Hire A Land Surveyor
The issue of property lines can become problematic for some people. A first-time homebuyer isn’t likely to consider the possibility that the boundaries of their properties could be wrong. Unfortunately, this is often the case. The only way to find out for certain where your property lines might be is to hire a surveyor. They will examine all kinds of records, both public and private, to determine exactly where your land ends and someone else’s land begins.
Tip #9: Problems Are Negotiating Opportunities
We already discussed the importance of inspections when buying a home. Indeed, you should be picky when making a purchase of this magnitude. However, that doesn’t mean that you should shy away at the first sign of trouble. Most home inspections will find at least one or two small problems, and these problems can be used as valuable negotiating leverage.
Obviously, you should walk away if the home has major damage. The amount of money you will pay to repair the place is unlikely to be worth the money you will save. Minor damage, on the other hand, is something with which you can work.
So let’s say your inspector finds a problem with the HVAC system. Instead of walking away from the whole deal, you can bring that inspector’s report to the seller of the home, and the financial institution that is financing this whole thing. Those little problems can be your friend because they allow you to say: “what is this? I wasn’t told about this problem, and I think my price should be lower as a result!” Companies and institutions know that you can always take your business elsewhere, so they will probably be inclined to make a deal. Just make sure you stay polite and respectful, or they might just dismiss your case entirely.
Tip #10: Stay Away From Flood-Prone Areas
Of all the natural disasters that can destroy your home, flooding has got to be one of the most frequent. Those who live in hurricane-prone areas are particularly at risk when it comes to flood damage. It might sound great to have a house by the lake or river, but you should make sure that the area isn’t prone to flooding, or your house might be underneath that lake or river before long! It isn’t all that hard to investigate this matter, either. Large floods tend to make the news, so you can usually find the information you need by searching back issues of the local newspaper.
Of course, this is only a partial list. There are many other pieces of wisdom and knowledge that can help you to get the best deal on your first home purchase. In general, most of this will just come down to your willingness to check things out before you lay down the money. If it helps, you should remember that paying money out is always a lot easier than getting it back. If these tips have helped you to be better prepared for your next home purchase, we invite you to fill out the contact form below for more of the same.