Home Ownership Tips
While the events of 2020 have affected the real estate market, some still find themselves looking to purchase a home this summer. Having spent the first decade of my career approving mortgages and having made my own mistakes purchasing my first home, I know how overwhelming the process can seem, especially without knowing these things beforehand. With first-time buyers in mind, I’ve prepared the following tips to help prepare for and limit surprises along the way.
Find a mortgage calculator online and get a rough idea of the cost that you and your budget are comfortable with BEFORE you meet a mortgage representative for pre-approval. This will keep you focused on what you want to afford, versus what the maximum pre-approval says you can afford (which can be quite tempting!). Nothing ruins the joy of a new home like a strained bank account; keeping within your desired budget will keep you from getting into a home that significantly cramps your lifestyle.
Do not base your affordability on the lowest rate. You’ll likely notice a mortgage payment calculator at the bottom of online property listings, indicating what your monthly payment would be based on the lowest rate possible. You might get that rate, and you might lock that rate in for anywhere between one to five years, but what if rates spike during your locked-in period, and your rate is 2% higher at renewal? Increase the rate on that mortgage calculator to make sure you would still be comfortable with the payment if your rate increases.
Remember, your monthly cost is more than just the mortgage payment. There’s also monthly property taxes and heating/power bills that you’ll need to consider, and they’ll be different for every property you look at. For example, you might find a higher-priced, but more efficient, home to be better for your budget than a lower-priced home that costs more to heat each month. Do not hesitate to lean on your realtor to obtain the power bills from the existing owner so you can compare. One of the mistakes I made was buying a home without truly understanding the full heating cost, and as a result, I had to make sacrifices going forward.
In addition to property insurance, don’t underestimate the importance of Health and Life insurance. Insurance is exceptionally easy to dismiss, but I can assure you based on the unfortunate circumstances I’ve had to advise through, that this could be the single most impactful decision you make throughout this process; more important than rate, more important than term. Compare the health insurance that your mortgage representative offers you with a policy from an insurance broker and choose the one that suits you best. You(and your family) are simply not going to want the risk of owning a home without it; by the time you realize you wished you’d put it in place, it will be too late.
If you don’t have a vehicle payment at the time of application, or worked into your budget, make sure you take it into consideration. It’s easy to forget at the time, but it’s highly unlikely you’ll go the life of your mortgage without having one!
Aside from the regular monthly payments, there are a few one-time costs that you need to be prepared for, as they are often after-thoughts to saving for your down-payment. The lawyer representing you will need to be paid, as will the appraiser and property inspector, so it is important to factor these costs into your savings also. As if that doesn’t seem like enough, some counties require you pay an additional ‘deed transfer tax’ when you purchase home within its boundaries. This can come as a nasty surprise, leaving you scrambling to find an extra few thousand dollars (as if!) just days before closing. Ask your realtor about the county and its deed transfer tax for any property you view.
Lastly, if you’re not approved, don’t hesitate to ask your representative why so that you can understand what steps need to be taken to get an approval next time. Remember that representatives generally want to provide an approval and know the framework they must work within, so they can/should be a useful resource on how to get there. Some of the most rewarding approvals I was ever able to grant were for clients who had put this advice into action, and through their own work, provided exactly what I needed to advocate for their approval.
While these are tips based on my experiences and helpful in my opinion, it is not an exhaustive list of the things you’ll need to consider, so remember to lean on your mortgage representative, realtor, and lawyer, to advise you along the way. It might seem overwhelming at times, but remember this is likely the largest purchase or investment of your life, so take your time and make sure your goal of home-ownership isn’t tainted by stress and struggle that could have been avoided. Best of luck in your search!
