Buying a home is a huge step. As the single largest purchase we make in our lives, it takes time, research, assistance from professional entities, and, of course, money. According to Zillow, the current median price of homes listed and sold in the U.S. is $182,500. With a 30-year mortgage and a 4.5% interest rate, this produces a mortgage payment of around $925.
This means that a person earning the median income (around $54,000) will spend around one-fourth of his or her income on the median mortgage payment. This is of course, prior to any homeowner’s insurance, property taxes, or other costs associated with owning a home.
The most recent Census estimates indicate the home ownership rate at 63.7%, which is a bit lower than the third-quarter 2014 rate of 64.4%. Prior to buying their first home, three out of four people rent first, and a small portion of people (18%) go straight from living with their parents to buying a home. Some people never rent. The largest portion of first-time home buyers (52%) are between the ages of 25 and 34; most first-time home buyers (62%) are also couples.
Considering most first-time home buyers have little or no experience with real estate, home valuation, the home inspection process, and the home loan process, there are a few things first-time buyers need to educate themselves on prior to taking the plunge. Using a publication by Frontdoor.com and talking to a few real estate agents, we found out some a essential pieces of information all first-time home buyers should know.
1. You can’t have it all
If you have a $200,000 budget, it’s highly unlikely that you’re going to be able to find a move-in ready home with four bedrooms, two bathrooms, and walk-in closets in the heart of the city.
This doesn’t mean you should compromise all of your wants and take the first home that an agent shows you. It simply means that you may need to sacrifice yard space for location, or you may need to give up a bathroom to be in a great school district, for instance. According to Zillow, these are “The top regrets of first-time home buyers, besides size” —
- “40% say they regret the cost of their home.”
- “28% say they wish they had quieter neighbors or better schools.”
- “24% say they regret their yard choice, whether they want more space or less maintenance.”
- “17% wish they had more available parking.”
To avoid having too many regrets, rank your wants in order of importance and try and find a home that is in line with your personal priorities. Also, keep in mind that you can change the look of a home with a little construction, but you cannot change its location or its cost (beyond a small discount after negotiations).
2. Fools rush in
“Every first-time home buyer gets excited about just about every home they walk in. They’re adrenaline-driven,” said agent Bobby Harding in a Zillow publication. Buying a home is thrilling, and when you walk into a showing and see that kitchen you’ve been imagining, beautiful hardwood floors, and high-end finishes, it’s easy to fall in love.
But there are so many other factors to consider aside from whether the home shows well. Is there enough counter space? Are the sight lines ideal for your situation? Is there enough room for your furniture? We spoke with one first-time home buyer who fell completely in love with a home because of its kitchen, only to find out after moving in that she would have to walk all the way around the kitchen island to the other side of the room every time she wanted to retrieve something from the refrigerator. She ended up hating the kitchen after a short time period.
3. The details matter, on both the interior and exterior of the home
When looking for a home, pay attention to the little things. For instance, if you hear any creaking in the floors or if the floor slants, this may be a sign of trouble. Things like a few spiders in the home may not seem like a big deal, but this could be a sign of a worse problem that could come up once you move in, especially if you live in a yard with several trees. The national average cost for pest control is over $300. Some insects, like spiders, are particularly difficult to get rid of.
Pay attention to the home’s exterior, as well. Is there any rotting wood on the outside of the home? How does the landscaping look? Anything that is damaged or needs updating could result in an added cost for you.
4. Use the inspection to your advantage
Of course, you should always have a home inspected prior to buying it. The inspection may show flaws with the house like leaks, problems with the foundation, or damage to the roof. In those cases, you don’t necessarily have to walk away. Remember that a list price takes into account curb appeal, neighborhood, structure, age, style, size and layout, condition, the market and comps, and miscellaneous factors like appliances.
If the house is priced incorrectly based on the inspection, your agent may just be able to get the price reduced.
5. Learn housing finances and the consequences of foreclosure
Before searching for a home, all home buyers should know about homeowner’s insurance, property tax rates in their location, private mortgage insurance (PMI), and how much money they are pre-approved for. During talks with real estate professionals, we’ve found that PMI appears to be the area first-time home buyers are least knowledgeable in. If your down payment is less than 20% of the home’s appraised value, the lender generally requires that you purchase private mortgage insurance. This protects your lender in the event that you don’t pay your mortgage payments.
In addition to being knowledgeable in the basic areas of housing finances, first-time home buyers should also know how pertinent it is that they choose an affordable home. Foreclosures have both long and short-term financial consequences, including a potentially large tax bill and a serious red mark on your credit file.
6. There are no guarantees
When choosing a home, it’s a good idea to check historical trends and future projections for the housing market in the area in which you are searching. A home is often a great investment, but like with other investments, there are some associated risks.
The housing market will have its ups and downs. Factors like school district ratings, neighborhood ratings, street noise, and crime statistics all come into play when determining the value of a home. Many of these factors are subject to change over the long-term. Frontdoor.com reports that “no one can predict exactly where the housing market is going. It’s important for home buyers to realize that if you’re emotionally and financially ready to be a homeowner, it’s always the right time to buy.”
7. You can create your own sweat equity, but do so cautiously
Many home buyers face the same dilemma: Should you buy a property that’s move-in ready or buy a fixer-upper and renovate? There are pros and cons to both choices. On one hand, a move-in ready property saves time, it’s generally easier, and you know exactly what the house is going to look like before you buy.
However, with a fixer-upper, you can customize it to fit your individual tastes, and you may just be able to create your own equity with a little hard work. If you choose a renovation project, be careful not to underestimate the amount of time and money such a project will require. Also, it’s essential that you still choose a desired school district (whether you have kids or not) and neighborhood. If you have the nicest house in the most dangerous neighborhood, it probably won’t be worth much.
8. Your exact boundaries and any building plans for your neighborhood
You may not be too pleased to find out six months after you purchase your home that an elementary school is being built right down the street. Now, you have to deal with the morning and afternoon traffic on your street, which is not only a nuisance but might just make it more difficult to sell your home down the road. Find out exactly where your property line begins and ends, as well as any building plans the community has in the future.