7/10/18

3 Essential Steps Before Buying A House

We typically focus on personal finance & travel-related content around here, but I’ve got some house fever! Kayleigh & I recently purchased our first home and after moving all of our stuff last weekend, I’ve got nothing but home on the brain. Luckily for you guys (or not), that means I get to share my homebuying experience with you! I think we had a very atypical experience in buying our first house, namely because we only saw two homes & had our first offer accepted at listing price.
 
Two Happy Homeowners!
I’ll go more into the details of my specific experience in a later post. For today, I want to focus in on three imperative things you need to do when going through the homebuying process. There are certainly PLENTY of additional tips & tricks we can add to the list, but for now, I’m going to focus on what I believe to be towards the top of the list. Without further ado, let’s take a look at what you need to do when looking at buying a home.

1)    Find Out What You Like…No Home Is Perfect!

One of the most common misconceptions when buying a home is that “the perfect home” exists. You could build the image of your ideal living space: 4 bedrooms/3 baths/finished basement/vaulted ceilings/bar space…the list goes on and on. However, reality kicks in at one point. Unless you are incredibly wealthy (and let’s be honest, most Smart Money Seed readers aren’t), you most likely are not finding a house with EVERYTHING you want on the market for the price that you budgeted for.

This is why it’s very important to shop around & make a list of what you are looking for in a home. For Kayleigh & I, we knew we needed three bedrooms and at least two full bathrooms for our first home. We were looking for updated appliances, a nice kitchen space, high ceilings & much more. When looking, a house fell into our lap that had MOST of what we were looking for, plus it was well within our budget.
5994 Trumhall Ave, AKA the new crib

If you can find something that checks most of your list off, I’m fully in the camp of jumping on that opportunity. We are thrilled to have many of the amenities that we were looking for in a starter home, plus we can always work on renovations to incorporate some of the aspects the home may lack. Just remember that renovations cost money-so don’t buy a home that will need updates taking you out of your price range! I’m still here to promote financial wellness and overspending on a home is one of the worst mistakes a person can make.

The lesson to take from this: make a list of what you would want in an ideal home, get out and see some homes & make the decision knowing you’ll never have your “perfect home”. Once you take that mindset, the buying process become much easier.

2)    Shop For Your Mortgage

Another trap initial homebuyers fall into is simply taking the first mortgage proposal that they see to “speed the process” up.  We had a great realtor that recommended multiple lenders to us, so we had initial options when looking at prospective financiers. You don’t need to just use the list that your realtor provides, though; there are a bevy of options available to you when looking at buying a home.

If you are a first-time homebuyer, I’d also look into eligibility for special programs that provide discounts/incentives for your first home purchase. For Ohio readers, My Ohio Home is the sponsoring site that matches your income/credit to the appropriate program. These programs range from down payment assistance/forgiveness to lower mortgage rates and are available at a wide range of mortgage lenders across the state.

Unfortunately, Kayleigh & I were disqualified from these programs due to income limits & thus, we took to the mortgage lender circuit. Aside from the usual suspects (big-name banks like Chase, Huntington, etc.), you can find competitive mortgage rates at:
  •          Credit Unions
  •          Online Lenders (think Rocket Mortgage)
  •          Private Lending Companies/Brokers

In our case, we shopped at all three before arriving at our current lender, one of the lenders our realtor recommended. He was great at talking us through all the available products & what we qualified for, while maintaining a competitive rate within the industry (shoutout David Arocho & Prime Lending)! Plus, he had old-school Pacman, Asteroids and some cornhole in his office suite. Needless to say, he had me sold.

It’s important to shop your mortgages & ask the lender if they can match rates across the market. Ultimately, this is one of the biggest purchases you will make in your life. It’s important to make sure you are getting the BEST deal you can! If I’m truly being honest, we should have shopped our mortgage even more. That’s a lesson I’ll take into my next home purchase and one I hope you take to heart when looking at financing your home.

3)    Monitor Your Credit

Our last tip is one that I stress to people regardless if you’re thinking of buying a home: MONITOR YOUR CREDIT! When you are looking at mortgages, the lender is going to take a magnifying glass to your credit report. They’ll be looking for anything they can to ensure that you are a trustworthy client while deciding what rates you qualify for. And while our credit system in the U.S. may not be the best indicator of whether a person can pay their mortgage on time, it’s what the mortgage system uses today.

If you were showing up to a job interview, would you show up looking messy, not knowing your talking points, etc.? NO-that’s not the Smart Money Seed way, and we can apply that same principle to your credit. When buying a house, you really should not open any new credit accounts for at least 6 months. That will ensure less “new” credit on your report, keeping your average age of credit higher & ultimately make you a more appealing customer for the lender.

In addition, make sure you have all credit card debt cleared off your account before applying for mortgages! This was a BONEHEAD move by me when we applied-I had simply let my credit card statement post & hadn’t paid the statement before the credit report had been pulled. Because of this, I showed outstanding debt and my debt-to income ratio was altered, thus altering our mortgage rate we were offered across the board.

ROOKIE MISTAKE by me & one that I’ll rue as I look at my amortization calendar. Everybody makes mistakes, even people that try to give financial advice on a blog! It was an expensive lesson for me to learn and one I can fix through a future refinance…but not an issue you want to deal with when making the biggest purchase of your life! Be smart, clear all of your “debt” before applying for a mortgage-your future self will be applauding your financial tidiness.

The lesson here: stay on top of your credit. There are many free credit reporting tools out there (Credit Karma, Credit Sesame & Mint, to name a few) that can help you get an idea of where you sit. Polish that credit report like you would your resume-you’ll qualify for better rates and save THOUSANDS of dollars in the process.

Summary

In closing (if you’ll pardon the pun), make sure you are well-versed in the language of the homebuying process before embarking on that journey. You’ll save yourself thousands of dollars and get the most bang for your buck, which is ultimately the goal of buying a house! Just remember:
  1.          Find Out What You Want In A Home
  2.          Shop Around For The Best Mortgage
  3.          Clean Up Your Credit (Like A Resume!)

There’s plenty more advice to give (I’m still learning myself) but for now, these tips should have you well on your way to making the right home purchase. Good luck!


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