Buying a home is a major commitment. Just like other major commitments (schools, jobs, marriage, etc.), it is important to do your homework and choose wisely.
Four Factors to Consider
- Affordability – A common mistake of first-time homeowners is to grossly underestimate the aggregate and ongoing costs of home ownership. If they qualify for a $300,000 mortgage, that is the target they aim for – without regard to whether the down payment and other closing costs have drained their resources to nothing. Why buy a fancy house if you have to sit on milk crates and sleep on the floor because you cannot afford furniture?
- Approach this as if you were a lender. Lenders calculate your DTI (debt-to-income) ratio to evaluate your ability to repay a loan. Do the same thing for yourself, projecting several years into the future. Add your property taxes, insurance, any neighborhood fees and local levies, and around 2% of the home's cost for annual maintenance.
- Will you have extra costs with starting a new family or adding to one? Are you skimping on your retirement funds to get by? Are college tuitions or other large expenses looming? Make sure you don't end up house-rich but without enough cash to pay your bills.
- Neighborhood/Environment – It is easy to get an inaccurate first impression of a neighborhood. Visit the house several times, at different times of day. Check the commute you will have during rush hour, and on weekends. Look for any nearby industries that may cause noises or odors.
- Stop in nearby restaurants, coffee shops, convenience stores, etc. and talk to locals, and try to speak with any potential neighbors you may see out in their yards. This will give you a feel for how you will fit in.
- It is also worth checking with the local planning authority to verify zoning regulations and check for any planned building or transportation projects that might change the character of the neighborhood.
- Complete Inspection – Make sure the home is inspected from a structural standpoint, and then go over it several times yourself from a functional or aesthetic viewpoint. You do not ever want to find a door in your new home without wondering what is behind it.
- Turn the A/C or heat on as appropriate and check the output from all vents. Do a similar check on faucets.
- For the structural work, don't forget the attic, fireplace/chimney, roof conditions, insulation, signs of mold or water retention, and assessment of electrical systems. Also, look for signs of foundation settling, such as drywall cracks inside or brick/foundation cracks outside. Are some windows or doors out of alignment or hard to close? A good inspector can assess these areas for you and fill you in on your options.
- Understand Everything You Sign – Make sure you understand the impact of any disclosures from the seller, as well as the contents of the mortgage closing paperwork.
- Reading through the fine print of all these documents can sap your will to live, much less to be a homeowner – nevertheless, it is extremely important that you understand all of the fine points before you sign.
There are many resources online to help you decipher mortgage paperwork. Reading these in advance may prevent you from being overwhelmed by the legalese, and you will have more pertinent questions to ask when clarifying something that you do not understand.
These steps don't guarantee success, but they do increase the likelihood of finding the best home for your wants, needs and budget. Good luck in your search!