The stuff was hiding everywhere. Behind the shower curtains. Under every bed. Even the bathroom cabinets were jammed tight with the family’s belongings. But outwardly this house in the suburbs of D.C. looked nearly perfect.
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I was touring an open house for a story and happened to notice a shower curtain jutting out at an odd angle. When I snuck a glance behind the curtain I was met with a wall of stuff. As I continued touring the home, I kept looking in the hidden spaces and everywhere I looked I saw more stuff than you would think one family could possibly own. It wasn’t so bad a hoarding situation that mice were building nests inside, but still it showed how a house—that had looked great in the photos—isn’t always going to be what it seems. No wonder first-time buyers are so anxious.
According to a study of 2,000 people commissioned by Homes.com, 44% of home buyers felt nervous throughout the process and two out of five described it as the “most stressful event in modern life.” It doesn’t have to be so anxiety-inducing if you start by asking yourself the right questions before you go looking for a property.
Many buyers will begin their search by looking online for homes that look good and they think they can afford, but this is an easy way to set yourself up for disappointment. Plus, you’ll waste a few weekends going to look at homes that aren’t in line with your needs. If you’re a first time buyer just starting out, here are the most important questions you need to answer before focusing your search on individual homes.
What can I afford?
While the homes you view on Zillow, Trulia or Realtor.com will include six or even seven figure list prices, the best way to determine your price range is to start with your monthly budget. How much should that be? Your current rent is a solid starting point. Could you comfortably pay more or is your budget already stretched? If you’ve been saving each month for a down payment add that amount. (Not sure how much you’ll need to put down? Read: How Much Do You Really Need For A Down Payment?)
In general, spending more than 30% of your annual income on housing expenses is a stretch. Remember that monthly payment has to cover the PITI—principal and interest on your mortgage as well as property taxes and insurance. Also assume you’ll spend at least 2% to 5% of your homes’ value on repairs and maintenance each year.
Use a mortgage app, such as Mortgage Home Loan Payment Calculator (Android) or Karl’s Mortgage Calculator (iOS, Android), to reverse engineer the purchase price that matches your target number. (For a list of apps that can help you pay off your mortgage balance more quickly, go here.)
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One word of caution about crunching the numbers on buying a house: you really have to have an exact number for the monthly payment you are willing to make. If you are off by even $100 per month that equates to a much higher overall sales price which can be the difference between buying in one neighborhood over another.
Carol Griffith, broker and regional Vice President for the National Association of Realtors, always tells her clients to decide on the type of mortgage that works for them before even coming up with a price range. “There’s a menu of services now from lenders of different mortgage products,” says Griffith. “We find one that is tailored to their needs before we even decide on a price point.” This can be anything from low down payment loans, professional loans for buyers just finishing up an advanced degree and about to make a much higher salary, FHA loans or ones that allow significant financial gifts from family or friends to go towards a down payment.
Of course, buyers do need to think carefully about price as well. As Griffith says, “You can fall in love with a house and it might be totally out of reach. But sometimes I’ve had first time buyers come back to me and say ‘oh I didn’t realize I could afford more than I thought’. So it can go both ways.”
Buyers may qualify for a higher priced home if a lender has a “friends and family” program that lets them use financial gifts towards a down payment, or if they can prove there is potential for additional rental income from the property.
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How should I decide where I want to live?
Of course, you’ll want to map how convenient a home is to the places you visit most—work, school, the grocery store or favorite restaurants. It can help to have these already saved in Google Maps to make it easier to figure out how convenient a home is when you add its location.
When you get close to deciding between several properties make time to give your commute a trial run and to visit the neighborhood during different times of the week. If you are buying in a city, stroll the neighborhood during late evening on a weekend so you can judge noise levels. If the house is near a park, drive by on a Saturday to see if street parking is overrun with cars ferrying kids to the soccer practices. If it is near public transportation, drive by during commute hours to see if people are using the neighborhood to park their cars for the day.
The local schools can have a big influence on whether or not a neighborhood is a good place to buy a home. If you have young kids, or are planning to while you live in the home, check out websites like GreatSchools.org that give you information about everything from test scores to attendance rates to find out more about each school.
Also take note of whether the neighborhood has an active housing market. If homes are sitting on the market for months at a time, for instance, it could be hard for you to sell your house quickly if you ever want or need to move. The neighborhoods that tend to see the most price appreciation are ones that have great access to public transportation and local amenities like parks and sidewalks so they can appeal to broader groups of people, such as families with young kids and older buyers who also want a walkable neighborhood.
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How long should I plan to live there?
Even though it is tempting to buy a house as soon as possible so you can start to build equity instead of spending so much on rent, it does take time to turn a profit on a home. The general rule of thumb is to plan to stay in a house at least five years before you can expect to see a major return on the investment (with the major exception being if you buy a fixer-upper and flip it after doing all the upgrades). Since you also have to pay a commission to a real estate agent and, assuming you are going to buy another house, you’ll have costs for things like the inspection and appraisal, there are going to be expenses you have to account for. Buying a house should be something you approach with a several year time frame in mind in order to make it worthwhile.
Do I need a real estate agent? Where do I find one?
If this is your first time buying a house, then you will most likely be better off if you have an agent as your advocate. A buyer’s agent doesn’t just help you find a property; they often know about the different mortgage programs that support first-time buyers. If you’re buying a home that needs work, a buyer’s agent may be your strongest ally in either asking for repairs before closing or a seller subsidy to help cover the repair costs. Also, they often understand the nuances of different neighborhoods and can help you locate the places where you would feel most at home.
A seller’s agent is the one who lists the property for sale and to whom the sellers will pay the total commission (typically 6%), which the seller’s agent then (usually) splits 50/50 with the buyer’s agent. Each agent also has to pay part of their commission to the brokerage that holds their real estate license. Historically it is has been a 50/50 split between an agent and a broker as well, but nowadays more and more brokerages are leaving this open to negotiation. This doesn’t impact the buyer directly, but with the proliferation of discount brokerages out there buyers should be aware that agents aren’t necessarily making as much as industry standards used to dictate, which could end up impacting the level of service they offer buyers.
“I can’t tell you how many letters I’ve received over the years from buyers who thought that the attorney who was at their closing represented them because they were paying for them, when in fact it was the attorney for the lender,” says Ilyce Glink, author of 100 Questions Every First-Time Buyer Should Ask. “They had no agent, no attorney, nobody to represent them at all. You’re buying a several hundred thousand dollar house, shouldn’t somebody be representing you?”
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Traditionally, people find a real estate agent through a referral from a friends or family member. If you have a network in the location where you want to live, start by asking everyone you can think of for recommendations. Then meet with a few of the agents to find out how much experience they have both in neighborhoods where you are thinking about living and with working with different lenders.
If you are moving to a new city where you don’t know anyone it is still worth asking around about local agents who might have connections in another city. The national brokerages, such as Keller Williams and Century21, often have referral networks or even just agents who got to know each other at a conference and have stayed in contact.
What should I look for when I tour a house?
It is easy to be lured in by stainless steel appliances (which are often used to make a kitchen look bigger since they create a ‘mirror effect’ by bouncing light around the room) and low-slung furniture (which makes the room feel like it has taller ceilings than it does), but try to look past all that and imagine inhabiting the space. Focus on what you need to live in the space in a way that supports your and your family’s daily lives. Can the kitchen or dining room accommodate a table everyone can fit around? Does the flow of the rooms support a space for people (i.e. kids) to be noisy while also providing a space for someone who needs to get work done? Things like outdated paint colors and old linoleum are relatively easy and inexpensive to fix, but if there is water damage, sagging ceilings, or signs of insect damage you could be in for bigger repairs.
As Glink advises, “make a list of everything you want in a house that you can’t live without. That’s how you know exactly what you’re looking for and where you’re willing to negotiate.”