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When looking for your first home, the search can be a stressful endeavor. With so many homes on the market, it’s hard to figure out which one is right for you, and more importantly, which one you can afford. But, you will usually end up overwhelmed and disappointed if you jump in too quickly. Maybe you end up paying too much for the property, or maybe you miss minor details that, after moving in, aren’t so minor anymore!
So, before signing on the dotted line, ask yourself four questions first.
It may seem obvious, but many first-time homebuyers assume they can afford much more than they actually can. Start by analyzing how much you currently pay in rent. The figure acts as your starting point to determine how much you can afford to pay for your mortgage. Remember, spending more than 30% of your monthly income on your mortgage is stretching it. But, if you have excess money saved, you may be able to swing it.
After you have the baseline number, you now need to add the extras. As a homeowner, you need to pay property taxes on top of your mortgage. You also need to purchase homeowners insurance. You also need to spend roughly 2% to 5% of the home selling price on maintenance and repair costs each year.
Another issue is heating and electricity. If your previous residence was smaller or you live in an apartment where utilities were included in the rent, you may be shocked at how much extra you need to spend.
Many first-time homebuyers are torn between hiring a real estate agent and conducting the search themselves. But, because agents usually receive their commission from the seller, their services are often free to use.
More importantly, agents can guide the entire process. They have a solid understanding of the neighborhood and can share detailed blueprints and legal documents that allow you to avoid any major surprises during the closing.
In real estate, location is everything.
And depending on your lifestyle, you want to find a home near amenities that you enjoy. If you’re an outdoor person, look for a property near a park or one that has plenty of greenery. If you have young children, you want a place near schools, daycare, and transportation services.
After you find a neighborhood that’s right for you, test it out at various times of the day. If you only see the neighborhood during the weekend, you may not realize how residents behave during the week. Maybe there’s a ton of traffic or noise during certain times of the day. Or maybe teenagers hang out close by on Saturday nights. Either way, conducting a thorough search means you won’t have any surprises down the line.
Another critical factor is the resale value. If you plan on selling your home at some point, you want to be sure there is an active resale market. Run through a few comparable sales and analyze how long homes are listed before they finally sell.
Because amortization is low in the first few years of homeownership, you need to live in a house for at least five years to see any return on your investment. Thus, make sure your time horizon fits your needs. When you factor in closing costs, legal fees, moving, and storage costs, you may end up losing money if you jump ship too quickly.