Buying a house is an exciting step in life, especially for DIYer Kristina Barbee. But buying a home is a huge financial expense, likely the biggest investment you’ll make in your life. That’s why Kristina properly planned before she put in an offer on her dream home. Here’s what you need to know before you contact a mortgage specialist, put in an offer and sign on the dotted line.
In case you missed it, I recently bought a house! Although my home buying experience was quick, semi-painless, and pretty easy, home buying is a lot more complicated that getting a loan for a car. Trust me. After hearing plenty of stories from my friends and family- and experiencing it myself – I learned that there is a lot more to buying a house than just calling a bank and giving them some money.
Start planning before you’re ready
Although there are plenty of programs out there for first time home buyers that offer down payment assistance and low interest rates, you’ll need a lot of money upfront to buy the house due to added costs associated with making an offer, including closing costs, cash deposits and deposits for utilities. It all adds up, you may be told by your banker that you only need your down payment to close, but in truth, you need a lot more. Planning financial long before you’re ready makes a world of difference!
Want to know when I started saving for a house? When I was in college. Granted, I could barely put a dime in my savings and it wasn’t much. I saved and saved (then spent and spent and spent, whoops) because I knew I wanted to be able to succeed in buying a home. Over the years, I’ve ran into financial difficulties and have had emergencies that have essentially depleted my savings. Ok, I also lived in an overpriced but nice rental that had expensive utilities.
Buy used or get hand-me-down furniture
Yes, the special at the furniture store is amazing. $3,000 for living room, dining room, and bedroom furniture may be a great deal, but free is even better! Ask your family and friends if they have any extra furniture or household items they’re looking to get rid of. Anyone you know moving? Great, help them out by taking some furniture off their hands. Flea markets and thrift stores are great places to find furniture and you can always spruce them up as a fun DIY project.
If you’re getting a loan for furniture or appliances, wait until after you close on the house. If you get a huge line of credit for your new furniture set or new appliances and you haven’t closed, the bank may deny you for being unreliable for opening up more credit. It happened to someone I know; they lost their home because of this mistake. Play it safe and don’t spend much until after the keys are in your hand!
Establish a wants vs. needs list
My must-have list for my home was quite general:
- 3 bedrooms
- 1 1/2 or more bath
- Big kitchen
- Off-street parking
When house-hunting, I also had a second list: what I really wanted that would be a bonus, and what I could live without. After seeing 2 homes, the main item on my can’t have list was a basement. I just didn’t want to deal with having one and deal with the possibility of mould.
What was on my want list? Big windows, a new carpet, garage and landscaping.
Be prepared to have to change your list around after seeing a few homes- this will of course depend on your price range.
This video (and fun graphics) outlines the difference between a want and a need and provides viewers with some examples.
Buy less than you can afford
My mortgage payment, including taxes and insurance, is less than the rent in my last 3 rentals. Could I afford a mortgage payment that matched my old rent? Of course, but I wanted a home that was more affordable in case emergencies came up, and because I wanted to live more comfortably and have more fun.
What’s the fun in having a home if you have no money to do anything with it? Choose your price range wisely. I told my loan office what I could afford per month at the maximum, and they approved me for that amount. When I went house hunting, I looked for houses that were well below my price range.
Any of the following costs can rise on a yearly basis, so take your price range into consideration:
- Mortgage payments
- Property taxes
Don’t imagine yourself living there until you have it
I made this mistake three times when house hunting. Before I even saw two of the homes in person, I was already redecorating and imagining myself living in those houses. When I didn’t get them, I was a bit heartbroken.
But wait. Isn’t the point of house hunting finding a house you can see yourself living in? Of course! But don’t be like me and spend days thinking nonstop about one house and imagining your entire life playing out in that house (I had a lot of extra spare time when I was house hunting). Don’t emotionally invest into the house, but explore if it could work for you.
Set your price and stick to it, but be prepared to negotiate
When I found the house I purchased, it was $10,000 over my maximum price range. I didn’t even want to look at it because of that, but my realtor convinced me that it would be a great idea since the sellers were desperate. So I looked at the house and made an offer the next day that was well under what I knew I could afford.
Why did I do this?
Because I knew that the sellers would come back with a counter offer, which they often do. I wanted to see how far down they were willing to go ($1,000 – lame) and then make a decision from there about counter-offering. Go in with a plan of attack that leads room for the negotiation that will almost for sure happen.
In the end, I paid more for the house than I planned, but it was still well under what I could afford. I spoke with my lender about the counter offer, ran some numbers and found out this house would be cheaper monthly than another house I liked that was cheaper. Why? The taxes and insurance on that house were a lot less than the other house. This is why it is so important to know how much the taxes are on the home and what the insurance would be. These two expenses could take a house you thought you could afford out of your price range.
Which reminds me…
Call your insurance company
Here’s a fun fact: I work for an insurance company, so insurance is on my mind a lot. I know, how exciting!
When I was house hunting, I pestered my insurance agent for quotes on the houses I liked so I could calculate my monthly mortgage payments for each home and see if they were affordable or not. My monthly insurance on the home I bought was $20 less than what I was quoted when calculating my mortgage!
You also have to secure your insurance coverage before you get the keys. Upon home inspection, the insurance company may respond with issues that need to be fixed. Waiting until the last minute to deal with the insurance could result in a slowed down closing if your agent tells you that there are issues that need to be dealt with. No one wants to be living out of boxes for longer than necessary!
Are you a DIYer? Doesn’t mean you’ll want a fixer-upper
I looked at places that were well below my price range, but then I had to change my plan of attack. Why? Because they were filled with problems.
Ugly paint and old carpet are one thing, but mould, smoke stains and wood rot are another. Here’s what I learned:
- Don’t just focus on the price of the house.
- Focus on the price of fixing the home, for these could cost more than buying a home that needs little to no work!
- This isn’t my forever home, so I can always fix up my dream home later in life.
Phew! That was a LOT of words! Did you make it all the way through? I know it was a lot, but home buying is rough and tough business people! There is a lot to learn, and I only scratched the surface here!
So, what does the house look like? Check back in the next couple weeks for a sneak peek into Kristina’s new home!
Are you ready to purchase a house? You’ll need the help of a professional. Consult our list of mortgage specialists who are experienced and knowledgeable when it comes to buying the biggest purchase of your life!
About the Author: Kristina Barbee shares her DIY adventures on her blog My Own Home.