- Buying a house is one of the most expensive purchases you make.
- There are some things you can do before buying a house that can save you money, time, and stress during the moving process.
- Here are the 10 smartest things I did before buying my first house.
In the early fall of 2017, my wife and I received a notice from our landlord that we’d been anticipating for over a year. Our two-year lease was transforming into a month-to-month affair. We would have to move so he could renovate and convert our apartment to anAirbnb.
We were faced with a tough choice: Continue to rent in New Orleans, a city we’d made our home since 2011, but was experiencing an increasingly hostile rental market, or take the leap into homeownership. Whatever we decided, it had to be fast. The letter gave us three months.
So I dialed back my freelance work and made it my part-time job to learn as much about buying a house as possible. We closed in January of 2018 – just in the nick of time.
Here are a few of the smartest things I did before buying my first home:
1. I crunched the numbers to make sure buying made sense
Contrary to some common misconceptions, my generation (millennials) has been driving a recent increase in homeownership, according to researchfrom The Census Homeownership and Vacancy Survey, reported by Trulia. But it is true we are waiting longer to take thehouse-buying leap, researchers from First American Financial Corp found.
My wife and I were fine with being lifelong renters as long as it made financial sense. But did it? In order to find out, we plugged all of our relevant numbers into a Rent vs. Buy calculator. The results were clear. If we intended to stay in New Orleans for more than a couple of years and could afford to buy now, then it would benefit us financially.
That decided it; we were going to at least try to buy.
2. We hired a buyer's agent
I'm a reasonably intelligent person, but it would be the height of hubris to think that I could understand the ins and outs of homebuying better than an expert - especially on the first go-round. So we hired a buyer's agent.
Abuyer's agentis a realtor who acts on behalf of the person buying a home. Our agent helped us find our home, negotiate with the seller, choose from a list of trusted inspectors, and generally advocated on our behalf.
3. We didn't get a mortgage broker
At a glance, getting a mortgage broker - a person who will hunt for the best rates for you from various lenders - makes perfect sense. Using a mortgage broker can save you the time and effort of researching lenders and sometimes can save you some fees, according to Investopedia.
But there can be drawbacks.
Brokers have to get paid, after all, and that's either by charging the buyer, the seller, or the lender about 1% of the mortgage amount, according to Realtor.com. And guess what? Working on commission from lendersmeans not working solely for you.
4. I did play lenders against each other to get the best rate (and stay local)
Foregoing a mortgage broker meant becoming my own. Luckily, the internet has made finding and comparing mortgage rates accessible to any reasonably tech-savvy person.
As a first-time home buyer, I knew that I wanted to get the best rate possible, but I also knew that I wanted to work with a local banker so that I had someone close by who I could communicate with throughout the process.
Local banks don't typically offer the best interest rates, but they will often match a better offer, my mortgage loan originator explained to me (I was lucky to be working with such a friendly banker). So, I started by getting pre-qualified for a mortgage through the local bank. After being quoted a rate, I went online to larger lenders to get the most competitive rate possible.
Within a few days, I was working with my local bank on a mortgage at a matched rate that was a full percentage point less than their initial offer.
5. We got a pre-approval letter from our lender
This is a small but important preparatory step in getting ready to buy a home.
Pre-approvalrequires going through the mortgage application process and getting approved for an exact loan amount.Pre-qualificationis more of a ballpark on how much loan you could be approved for based on financial information you volunteer. Guess which is stronger when it comes time to make an offer?
Having your pre-approval done demonstrates to the seller that you're serious and able to make the mortgage commitment without their having to wait for you to jump through extra hoops.
6. We calculated exactly how much we wanted to spend — and stuck to it
My wife and I made the decision early on to spend no more per month in total mortgage, homeowners insurance, taxes, and utilities payments on the new house than we currently spent per month on rent and utilities.
Searching for a house this way greatly limited our choices in acompetitive market, but that was a good thing for our compressed timeline. And it meant that whatever we bought would be an asset from the get-go.
7. We had frank discussions about our desired lifestyle
Your first house is not likely to be your last house, but people are staying in their homes longer - a median of ten years, up from the median ofsix in 1985, according to a 2017 survey from theNational Association of Realtors.
That means having open discussions with your partner (or reflecting on your own) about how you like to live today and how you want to live in the future.
For instance, my wife and I had always rented two-bedroom apartments and thought we would do the same for our new house, but we soon realized we actually wanted a third bedroom for the future. And while we liked our close proximity to restaurants and bars as renters, more often than not we ended up driving or taking transit to meet friends across the city.
Things we once thought were important weren't as important as we'd thought, and realizing that helped us make different buying choices, as well as help dictate where and what we could afford to buy.
8. I researched target areas aggressively
"Location, location, location" goes the old truism, and it holds up. Beyond our personal preferences, we still had to consider what direction housing prices were trending historically and what thecomparable sales werefor houses of similar square footage, age, and layout to what we wanted to buy.
Additionally, we're accustomed to being a one-car household and knew we'd be moving further away from the city center, so finding out the ease and distance to public transit became a factor for us.
I'd also recommendconsulting a crime mapto see the patterns and what type of crime occurs in the area you're looking over a given year.
9. We got multiple inspections
Buying your first house is likely to be one of the biggest purchases you've ever made, and likely the most debt you've ever incurred at one time. That can make you feel green in the gills as the additional expenses add up, including the cost of inspections of a house you might decide towalk away from.
But to not get all of the inspections you might need is a penny-wise, pound-foolish proposition. In addition to your standard home inspection, it's good to at least get a separate video pipe inspection (which regular home inspectors sometimes don't do), as well as an additional roof inspection from a certified inspector if the home inspector detects any damage, Bill Loden, president of the American Society of Home Inspectors (ASHI) toldZillow.
And in our part of the American South, where millions of termiteshatch and swarm each spring, a termite inspection was non-negotiable as well. In fact, our termite inspection turned up serious damage to one of the sills underneath the house, which would need to be completely replaced.
These inspections might hurt the wallet upfront, but it's better than a nasty surprise after move-in.
10. We had a 'Plan B'
No matter what experts you recruit during the home-buying process, you're still your own best advocate. So when I told my mortgage lender that I wanted a total backup plan if the mortgage didn't get underwritten, he might have thought I was a little crazy, but I pushed anyway. After some cajoling, he went along with it, creating a backup application that relied solely on my wife's steady W-2 income to get the mortgage approved.
I'm a freelancer and independent contractor so I knew that underwriting with my income wasn't a guarantee, despite a pre-approval letter. While that might sound like a special circumstance, one in five jobs in the American workforce arenow contractor positions, so it's increasingly common.
Securing a mortgage and buying a house for the first time is a daunting proposition, but regardless of your particular circumstances, having a fallback plan is essential. Don't let anyone persuade you otherwise.
In the end, my worst case scenario did end up coming to pass, with a change in my business's structure in the past two years invalidating my income, despite having the same client base and annual income. But instead of it being a life-changing ordeal, it delayed the sale by less than a week.
So swallow that feeling of being too pushy. When dealing with something as massive and life-changing as buying a house, you can't do too much to ensure you're set up for success.