Whether you’ve done it before or not, the challenge of buying a home can be incredibly daunting. It’s tempting to either just go with the first place that falls in your price range or continue to rent. Tempting or not, making prudent decisions, like exploring homes for sale carson city nv or even Lake Tahoe homes can not only enhance your lifestyle, they can be excellent long term investments, or simply a fantastic place to retire. To help you demystify the process and get the most out of this purchase, let’s examine what you’ll need to consider before you buy, what you can expect from the buying process itself, and some handy tips to make life easier after you move into your home.
Considerations Before You Buy
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The first thing you’ll need to determine is what your long-term goals are. Then, consider how home ownership fits in with those plans. Some folks are simply looking to transform all those “wasted” rent payments into mortgage payments that actually lead to owning something tangible—equity, baby! Others see homeownership as a sign of their independence and enjoy the idea of being their own landlord. Then, there’s the issue of thinking of buying a home as an investment.
Narrowing down your big-picture homeownership goals will point you in the right direction. Here are six questions to ask yourself:
1. What Type of Home Best Suits Your Needs?
You have several options when purchasing a residential property: a traditional single-family home, a townhouse, a condominium, a co-operative, or a multi-family building with two to four units. Each option has its pros and cons, depending on your homeownership goals.
It’s up to you to decide which type of property will help you reach those goals. You can also save on the purchase price in any category by choosing a fixer-upper (although the amount of time, sweat equity, and money involved to turn a fixer-upper into your dream home might be much more than you bargained for).
2. What Specific Features Will Your Ideal Home Have?
While it’s good to retain some flexibility in this list, you’re making perhaps the biggest purchase of your life; you deserve to have that purchase fit both your needs and wants as closely as possible. Your list should include basic desires, like neighborhood and size, all the way down to smaller details like bathroom layout and a kitchen that comes with trustworthy appliances. Real estate websites can be a valuable tool for researching properties that satisfy your desires and requirements for your new home.
3. What Size of Mortgage Do You Qualify For?
Before you start shopping, it’s important to get an idea of how much a lender will actually be willing to lend you to purchase your first home. You may think you can afford a $300,000 place, but lenders may think you’re only good for $200,000—depending on factors like how much other debt you have, your monthly income, and how long you’ve been at your current job.
Make sure to get preapproved for a loan before placing an offer on a home. In many instances, sellers will not even entertain an offer that’s not accompanied by a mortgage preapproval. In addition, many realtors will not spend time with clients who haven’t clarified how much they can afford to spend. Begin by researching lenders and comparing interest rates and fees. Then, submit your application for a mortgage and include the supporting documentation requested by your lender to verify your income and debt.
4. What Kind of Home Can You Actually Afford?
On the other hand, sometimes a bank will give you a loan for a more expensive house than you really want to pay for. Just because a bank says it will lend you $300,000, doesn’t mean you should actually borrow that much. Many first-time homebuyers make this mistake and end up “house-poor”—meaning after they pay their monthly mortgage payment they have no funds left over for other costs, such as clothing, utilities, vacations, entertainment, or even food.
In deciding how big a loan to actually take, you’ll want to look at the house’s total cost, not just the monthly payment. Consider how high the property taxes are in your chosen neighborhood, how much homeowners insurance will cost, how much you anticipate spending to maintain or improve the house, and how much your closing costs will be.
5. Do You Have Serious Savings?
Even if you qualify for a sizeable mortgage, there will be a considerable upfront cash outlay that includes your down payment (3.5%–20% of the purchase price) and closing costs.
When it comes to investing with an eye toward purchasing a home—a short-term goal—one of the biggest challenges is keeping savings in an accessible, relatively safe vehicle that still affords a return. If you have one year to three years to realize your goal, then a certificate of deposit (CD) may be a viable option. It’s not going to make you rich, but you aren’t going to lose money either.
The same idea can be applied to purchasing a short-term bond or a fixed income portfolio—it will give you some growth but also protect you from the tumultuous nature of the stock markets.
If the home purchase happens in six months to a year, then you are going to want to keep the money liquid. A high-yield savings account could be the best option. It’s important to make sure it is FDIC insured so that if the bank goes under you can still have access to your money up to $250,000.1
6. Who Will Help You Find a Home and Guide You Through the Purchase?
A real estate agent will help you locate homes that meet your needs and are in your price range. Then, they will meet with you to view those homes. Once you’ve chosen a home to buy, these professionals can assist you in negotiating the entire purchase process, including making an offer, getting a loan, and completing paperwork.
A good real estate agent’s expertise can protect you from any pitfalls you might encounter during the process. Most agents receive a commission, paid from the seller’s proceeds.
