6 Things All First-Time Homebuyers Should Consider
Buying a home is one of the most rewarding things you can do. It’s almost an American badge of honor—but that doesn’t mean it’s easy. There’s a lot to consider when you’re looking at an investment that takes most people three decades to pay off. Before you start filling out those change of address cards, make sure your investment is a smart one by keeping in mind these six things most new homeowners overlook.
1. Hidden costs. When you take possession of your new home, you also take possession of a slew of new expenses you may not have considered. In addition to costs like homeowners insurance and property taxes, you should also be prepared for the less-obvious incidentals that come along with home ownership. Setting up new utilities may require a deposit or large up-front payment. Contact your utility companies in advance to find out about any fees and get an idea of average utility costs for your home. If you’re moving far from your employer or school, you need to factor in gas and vehicle upkeep. And don’t forget about all those unexpected problems your landlord used to handle, like clogged plumbing, a broken furnace, or storm damage, not to mention the purchase of appliances such as a refrigerator, washer, or dryer (and fixing them when they break down).
2. Non-traditional funding sources. It’s always a good idea to have your funding in place before looking for a home in earnest. But if you’re worried about getting financing, remember that in addition to traditional FHA and conventional loans, there are also grants and other funding sources available for first-time homeowners. These can come with low interest rates, and some don’t even require repayment. Look for grants or programs related to your profession. For example, teachers and farmers have several programs to choose from. You may also find funding sources related to the area where you plan to purchase. Rural areas, high-poverty areas, and up-and-coming regions often have incentives and grants available. You may be surprised at how easy it can be to qualify for any of these funding sources, even if you’re afraid your income would automatically exclude you. As a final note, you might want to consider an online real estate marketplace like Auction.com, where you may be able to find homes at a substantial discount, including many that are financeable.
3. Using a real estate agent. It may seem like a cost-savings strategy to buy a house without using a real estate agent or Realtor®, but the protections that come with hiring an agent are well worth the cost. Real estate agents are held to certain ethical standards that require them to look out for the best interest of the buyer and the seller. They also know what to focus on during negotiations and can help you avoid getting stuck with a house that looks pretty on the outside but is getting ready to crumble on the inside.
4. Inspections. Some loans and states require home inspections, but even if it isn’t mandatory for you, you should still do it. An inspection will give you peace of mind that you’re not walking into a money pit. Home inspections check out everything from the condition of your roof to whether or not each electrical outlet is working. If you’re working with a real estate agent, he or she should be able to recommend a reputable company to do the inspection. If not, ask other recent homebuyers for suggestions.
5. Resale value. Now is not the time to be shortsighted. When you’re looking at investing in a home, you need to think long-term and resale value. Beyond the specifics of your home (number of bedrooms, baths, etc.), consider the neighborhood, school district, local crime rate, and access to local activities and amenities. Houses in good school districts and low-crime areas have better chances of holding onto and increasing in value. But even if it’s in a nice neighborhood, a three-bedroom home with just one bath might be difficult to sell, especially to a growing family. The biggest home in a neighborhood full of smaller houses could be harder to sell if you need to move. Before you sign on the dotted line, make sure you’ve considered how your investment will hold up in the long run.
6. Investing in the right upgrades. It can be exciting to jump in and start turning your new home into your dream home. But use caution before taking on an expensive remodel that might not give you a good return on your investment. Not all home upgrades are equal. In fact, many of the most expensive projects don’t increase your home’s value enough to make them worth the money. Remodeling an office, adding an expensive master suite, or expanding the bathroom won’t get the same return on investment as smaller, less expensive upgrades. By keeping the same footprint while updating existing areas of your home, you’ll get far more bang for your buck when it comes to home value and resale. Pools and sunrooms often seem like surefire ways to increase value and attract buyers, but the appeal of these items varies from market to market. A pool will rarely see a return of better than 11% of the money spent to put it in. Choose upgrades that make sense financially; change out countertops, update flooring, paint, and fixtures, and (whatever you do) don’t convert that closet into something else—storage is real estate gold.