Probably the biggest financial goal for many Americans is buying a home. Home buying it typically the biggest financial investment you will ever make in your lifetime. Unless you’re a baller and you trade millions of dollars on the stock market, but the truth is if your that big of a baller your probably not reading this blog. Anyways, this post Home Buying for Dummies is mainly for me, because I don’t know a thing about it. Buying a home is such a big decision and it is overwhelming to know where to start. I decided to interview my father in-law, who is a reputable real estate agent in the San Francisco Bay Area. I told him I wanted to find out the step by step basics of buying a home, and what my wife and I needed to get in place in order to even consider buying a home.
He suggested that if your interested in buying a home then you need to start by saving money. You’re going to need to have enough money (cash) to cover a down payment on a house (anywhere from $10k-$50K), and closing costs ($7k-$10K). It is recommended that you save up about $20k-$60K in cash to cover these expenses. People must remember there are other expenses that go into home ownership. Before closing a deal on a house the buyer will need to pay for a home inspection ($500) and an Appraisal ($500). Buyers must keep all of these costs in mind before starting their search for homes. Obviously the more money you save, the better. The larger the down payment, the lower the interest rate. Saving money should be your number one priority before you even think about buying a home.
The next step to buying a home is you need to make sure you establish good credit. If your credit score is over 700 then you should easily qualify for a loan. People in the range of 650-700 on their credit score might still qualify, but it will be more difficult. View your credit report and make sure that there is nothing outstanding on there, and make sure all information on the report is accurate. You will not qualify for a loan if you do not have good credit, so make sure you establish your credit history.
One huge mistake that most people make when thinking about buying a home is they start looking at houses before they even get qualified for a loan. Do not look at houses until you know what you can afford. Get qualified for a loan and then you will know what price range of houses you’re looking for. You don’t want to be searching for $300,000 homes, when you’re only qualified for $250,000. Once you qualify for a loan then you can starting looking at homes with a real estate agent.
Searching for a home can be an overwhelming, but it doesn’t have to be. Find a real estate agent that is willing to help you find your dream home, and not just make money off of you. If at any point in the process you feel pushed by your agent to buy, then I recommend you find another agent. The agent should be looking out for your overall well-being. Buying a house is a decision that you will have to live with for the rest of your life and you don’t want to be pressured into that decision.
The final insight into buying a home is location is everything. A beautiful 5 bedroom house in a bad location isn’t worth the investment. Find neighborhoods in your area that have a good reputation; with good schools, parks, and community involvement. Search for homes in those areas, as this will help you narrow your home search. You might have to pay more for less of a home, but the location is the most important. Ask your Realtor for advise on the best neighborhoods in your area, and they should point you in the right direction.
I hope you find this post helpful in your search for buying a home, please feel free to add any additional considerations in the comments box. This post is meant to give you a starting point for Home Buying. A special thanks goes out to my father in-law for his insights.
-Matt
[photocredit: houston.olx.com]
I’m not sure I buy the myth of home ownership… you never really own it. You pay taxes on it til you die. You’re stuck in a place… Im just not sure.
The other issue I have is that houses are not reasonably priced. Nothing should cost 30 years to pay off. That is unreasonable. But we dont question that. We assume its okay because every one else is going along with it.
My question is this: why do people put their security in material possessions?
you dont ever own that house. the govt does. not you. the govt. furthermore, natural disasters can destroy it in a second, you could lose your job, your wife or child gets cancer and boom, you’re broke! and oh, that house you bought? gone. thanks for playin.
David,
Great perspective on home ownership. With you being a craftsmen, don’t you wish you had a home that you could put work into, upgrade it, and take pride in the changes that you have made. I agree, I don’t want to be a slave to anything, and home ownership is a huge decision, but I also want to be able to do whatever I want to my property. I want to be able to have a garden, remodel a kitchen, build a loft
. I probably could never do these things on my own, but I wish I had the option.
I’m going to have to disagree with David here. If you buy a home, don’t refinance it and pay it off, then you own it, not the bank or the government. Despite the recession and housing crash, this is still America.
We bought our house 15 years ago and in six more years it will be paid off. Obviously, we pay extra every month, which many “experts” tell you not to do. We’re glad we did, because our yearly housing cost (insurance and taxes) will soon be $3,000, which is close to what our house would rent for per month.
I learned this lesson from my parents who own three houses free and clear. When they paid off their first houses, they rented them out and used to rent to pay for their new house on a 15 year loan. They are retired and not worrying about the stock market or social security. As the years go by, their rents go up and their income keeps pace with inflation.
Buying a house isn’t for everyone. It’s a huge investment, it can be a poverty trap and it limits your mobility. But, if it’s done right, it can defnintely be the best investment of your lifetime.
Very good explanation
Matt,
Move out of SD and buy a house in PHX. There’s still lots available in my neighborhood!