5 Top Tips for First Time Buyers
I remember the very first home I bought. Although I did not bury myself with unsustainable debt, the entire process was terrifying and fraught with second guesses. I imagine this is the same thing ever first time buyer goes through.
Strangely enough, this kind of fear and indecision is normal. It comes with the fact that your first home is one of the most significant investments you will ever make. So, instead of going through months of ulcers and stress, here are some simple tips that will help ease the entire process.
How much can you really afford?
The greatest mistake people make, and one of the main reasons why we got into that whole housing mess, is that many people buy houses that they can’t really afford. As much as you get to pay the house off over a couple of decades or so does not mean that you can go out and buy a house that is completely out of your range. The first and most important thing to do is to lock down a budget.
This budget should NOT be negotiable. Once you have done the calculations and realise that you can comfortably afford $X for the house, that is your budget. Do not try to find wiggle room through wishful thinking and saying that you will cut back on some of your luxuries. Although that is a completely viable strategy, not many people have the discipline to do so (such as turning down a Bahamas trip with friends). Decide on a budget based on your current situation and stick to it.
If saving for a deposit is difficult, do not settle for those 95%-100% mortgages. These low-to-no deposit payment schemes not only increase the interest you’ll pay throughout the duration of the loan, but they also increase your chances of getting into negative equity should the market fall.
Avoid such unnecessary risks by checking flexible payment terms like lease options that can help you slowly build up to the deposit you need and apply for more reasonable home loans. There is this excellent property investing podcast called We Buy Houses Radio show by Rick Otton that discusses a lot about flexible or alternative contracts.
Find the right person to help you find the right home
What you need to realise is that realtors get paid commission. This inherently means that they make more money if they sell an expensive house. Don’t be fooled, there are ways around buying houses that are way beyond your budget.
For starters, many savvy realtors have bank contacts to people who can actually give you a loan for a much bigger and more expensive house than you can comfortably afford. If you do not stand firm on your price, you will be easily swayed to buy a bigger home using a loan that you can’t possibly repay; at least not comfortably. Find a realtor that is empathetic to your situation. One who realises that you have a budget for a reason and one who will find you a beautiful house within that budget. The best way to do this is to use someone who comes highly recommended, mostly by your friends and family or someone who has great reviews online and is a big part of the local community. These are realtors who trade on their good reputation and word of mouth. They are least likely to do you wrong.
Take your time to find the right house
This might sound like obvious advice but you will not believe how often first time home buyers settle for the very first house they find that falls within their price range. I almost fell into this trap as well. This is mostly because the entire process can be very frustrating. No matter how tired, stressed and frustrated you are, take the time to find a house that calls to you. This way, you are least likely to regret your purchase.
Decide what type of home best suits you
Take a complete stock of your life and decide what type of home is best for you. Are you a condo kind of person; a single unit; a townhouse; a multi-family building or would you rather just buy an apartment? These are all things that you should seriously consider before shopping around. Because, like it or not, you will have plenty of options from all categories. Avoid the confusion by being firm on what you want.
Do you intend to live in the house, rent or sell?
The assumption that every first time homebuyer is looking for a house to call home is wrong. There are those homebuyers who just want something that they can trade in six months down the line. There are those who want to buy rentals just as there are those looking for homes in which they can raise a family. In which category do you fall? This will determine just how much emotional investment you put into the purchase and that makes a huge difference. You are more likely to make a financial mistake when you are too emotionally invested in the house. Try to detach yourself from the purchase and buy based on logic and financial capability.
That’s all folks! Every one of these 5 Top Tips for First Time Buyers is very straightforward but very easy to ignore.