Ready to Buy A Home?

As The Office's Michael Scott would tell you: "I just think there are two specific kinds of people in the world. People who own houses and people who own condos..." If you're a fan of his shenanigans, you may recall Michael was trying to impress a Benihana's waitress with his newly-purchased condo. Bonus points if you knew his real estate agent ex-girlfriend is his real-life wife! Now that I've derailed my whole blog, and you're coming out of an IMDB wormhole, let me get back to this week's subject - renting or buying your living space. Having purchased four homes in three states (I'm not proud of my transient background), I believe I can offer a unique perspective to this discussion. Here are the key considerations before taking the plunge!

Are You Ready?

Like so much of life, timing is everything. Buying a home is no different. Before spending significant amounts of time (and money), you need to make sure you're ready to "settle down". I'm definitely not suggesting you need to be married or have kids to do so; in fact, I had purchased house #3 before I met my beautiful wife and had children. What I'm suggesting is you need to be committed to living in the same place for a while. From a financial perspective, general guidance is staying put for at least five years. You also want to be stable in your career, where you have a steady income and, if interested, a career path in the same office or geographic area. I bought my first house at 23 (all by myself, like a big boy!). It was a very inexpensive, "cozy" 1924-built fixer-upper in a small town. I did so knowing I would be in it for a few years, as I hoped to advance in my career with my company. Though almost all opportunities would mean moving, the company had a very generous relocation policy that included buying your existing home outright. Less than four years later, I took advantage of that policy and moved into house #2. I realize I was extremely fortunate here, but what I want to illustrate is you need to have a plan before you buy. Is this your forever home, or do you plan on moving again in a decade? What's your personal situation (married/kids), and do you expect that situation change over time? It's also important to recognize owning a home requires more time spent on maintenance than an apartment. Unless you have a highly-trained fleet of robots ready to help, you'll need to mow the lawn, repair/replace house fixtures, clean, shovel snow, etc. Do you have the time (or interest) in doing these additional tasks?

Can You Afford This?

If the time is right, the real question becomes what can you afford? Before looking at properties, I would recommend running the numbers yourself. If you already have a personal budget/spending plan, you're probably close to knowing what you can afford for a monthly mortgage payment. If you don't, I highly suggest creating one. Feel free to reach out to me in the Ask Me! section of my site and I would be glad to help. Remember to factor in all costs - taxes, insurance, maintenance, utilities, etc. Before going out on the prowl for the new place, I recommend getting a pre-approval letter from a lender. You will need to provide some basic financial information to ensure you have the income/assets to afford a home. You're not committed to using this lender for the actual mortgage. Keep in mind, the pre-approval amount is not the same as being approved for an actual mortgage of that amount. It's meant to show your realtor and potential sellers that you're financially prepared to make an offer up to that amount. When it comes to your price range, stick to your budgeted amount (or lower). Going outside of your budget will lead to wasted time/effort/money when it comes time to closing, and some heartache when your dream home is out of reach. Finally, I recommend shopping around for the best interest rates and closing costs from a few lenders and having one in mind before making an offer.

Finding the Right Home

For most of us, the fun part of buying a home is the shopping! I recommend doing some research on your own first before engaging a realtor. Use a site like Zillow to see what homes are on the market based on our criteria - price, square footage, beds/baths, etc. Consider additional factors like school districts (if not for you, for resale value), accessibility to your work or for other needs, and style of home/property.

Narrow down to a handful you want to go see in person, then either reach out to the individual listing realtors or find one realtor to set up all appointments. The advantage of using the listing realtor is, if you decide to purchase their home, the cost typically comes down on their commission fees. Though it can vary based on realtor and region, the seller typically pays 6% of sales price - 4% for listing realtor, 2% for buyer's realtor - for their work. The realtor may knock that total down to 5% if they represent you and the seller (dual agent), which can help you negotiate the sales price down. But, if they become a dual agent, they cannot show any favoritism to either you or the seller. If you have your own realtor, he/she will still want the 2% fee, but you will have your realtor in your corner if questions arise. I've tried it both ways, and I would recommend having your own agent if you're a first-time buyer to help you identify concerns about the home and provide their expertise.

So is that all you need to know? Of course not. Next week, I will dive into the heavy-lifting of the home purchase process.