Ready to take the plunge and become a home owner in 2019? A life-changing purchase can be daunting, but the more information you have, the easier the process will seem. Here are some of our best first-time home-buying tips 2019.
1. Don’t Wait for Perfect Economic Conditions.
While inventory is currently looking good, and mortgage rates seem to be holding, don’t try to time the market or wait for the perfect time to buy, says Dr. Vivek Sah, director of UNLV’s Lied Institute for Real Estate Studies.
“No matter where you live, it is recommended to buy as soon as you have the financial resources to do so,” he says.
That’s because home buying ideally should be a long-term decision, not based on the whims of a certain cycle.
“Timing of the decision matters little in the overall scheme of things, assuming it is not an investment-related decision. Because housing markets operate in cycles, any home-buying decision based on sound fundamentals will result in a good long-term asset creation,” Sah says.
One trend to be aware of this year is a slowdown in appreciation rates. The National Association of Realtors forecasted that existing home prices will climb just 2.5 percent in 2019, compared to 4.7 percent growth in 2018. This supports the idea that buying a home is a long-term proposition.
2. Make Sure You Have All the Financial Pieces in Place.
Buying a home is more than just plunking down a down payment at the beginning and then making your monthly mortgage payment. Here are all the various financial costs you should prepare for, according to Sah:
- Down payment, which he recommends to be at least 20 percent to avoid private mortgage insurance (on conventional loans), and to limit risk based on cyclical fluctuations in home values.
- Mortgage payment, based on the interest rate of your loan. If you choose to use an “adjustable rate mortgage,” make sure you understand how they work and that you have the financial capacity to absorb the increase in payments if interest rates increase to their life-time cap.
- Homeowners’ Association fees, most common in neighborhoods built after 2000.
- Homeowners insurance to cover damage or theft—some areas may require additional coverage for natural disasters such as hurricanes, wildfires, tsunamis, etc.
- Closing costs, which your real estate agent will estimate.
- Funds for ongoing home maintenance, both indoor and outdoor.
3. Find a Real Estate Agent.
First-time home buyers are often surprised to learn that having a “buyer’s agent” costs you absolutely nothing, because traditionally, the commission is paid by the seller, points out Brian Beatty, Realtor and host of the Brian Beatty Real Estate Show. But it’s highly recommended to have your own agent, as the listing agent represents the seller’s best interests—not yours.
“Ask your friends, family and colleagues for a recommendation but also do your own research on Zillow, Realtor.com or any other reputable website to find agents with a large number of recent sales and five-star reviews,” he says.
Don’t stop there: You’ll want to interview at least two agents to make sure you’ll be comfortable with them. Among the questions he recommends asking are:
- What is unique about your approach to the home buying process?
- What is your process for identifying homes for sale that meet my search criteria?
- Do you also identify potential for sale by owners, off-market properties, coming soon properties or other shadow inventory?
- Do you have preferred vendors or relationships that will help me save money and time throughout this process?
- Do you offer any guarantees?
- Why should I hire you over another agent?
- How many homes have you sold over the past 12 months?
- What can you tell me about the specific market I’m interested in so I can form realistic expectations about the process, pricing and negotiations?
4. Get Approved for a Mortgage.
This step has two important benefits. First, it establishes your ideal budget for a home so you don’t look at properties that are way out of your price range—which can be aggravating for you and your agent. It also shows that you’re a serious buyer when it comes time to make an offer.
Note that there is a big difference between pre-qualification, pre-approval and approval for a loan, says Beatty.
- “Pre-qualification” simply means a lender has run your credit and done some math related to the information you have offered about your salary and debts. A pre-qualification will yield a letter that says something like “subject to verification of income, assets, credit, etc.” It doesn’t mean that you are guaranteed to get a mortgage, it just means the lender has reason to believe you may be able to get a mortgage.
- “Pre-approval” means they’ve done all of the above, but they’ve also received your tax returns, pay stubs and bank statements. “It packs a bigger punch than a pre-qualification letter, but it still hasn’t gone through the underwriting process,” he says.
- “Approval,” means the lender has actually submitted all of your paperwork to underwriting, reviewed it internally, and issued approval for a mortgage up to a certain purchase price based on their estimates for the total monthly payment (principal, interest, taxes and insurance). “An approval letter is nearly as good as cash because it shows a commitment from the lender to provide you a mortgage, which is especially helpful if you’re in a multiple offer situation,” he points out.
If you’ve struggled to get approved in the past, the good news is that there has been some loosening of underwriting requirements in recent years. Lately lenders have asked for less documentation, accepted average credit scores and permitted smaller down payments, according to NerdWallet.
5. Prioritize Needs vs. Wants.
You need a fenced yard for your dog; you want an extra bathroom. You need a place for your home office; you want extra storage space in your garage. Looking at houses can be overwhelming so it’s smart to dive down into the factors that are non-negotiable. And depending on your price range, those “non-negotiables” might morph over time, but it’s smart to start with some in mind.
“It’s ok to be picky,” says Karen Schneider, president of Lois Schneider Realtor, because after all, this is one of the biggest purchases you are liable to make in your lifetime. “However, don’t be unrealistic with your expectations. There’s no such thing as a perfect home so use your list of priorities as a guide to evaluate each property.”
6. Zone in on Neighborhoods.
If you are overwhelmed with the house hunting process—which can happen easily—one of the quickest ways to narrow your universe besides price is to focus in on the neighborhood and your desired amenities. Does it need to be walkable? Near public transportation? Are sidewalks and parks important?
Don’t forget to check into the local schools; even if you don’t currently have kids—and even if you don’t plan to—school district ranking still matters as it can impact your ability to eventually resell the home.
7. Insist on a Home Inspection.
In some markets, offers are being accepted at such a crazy pace that it can be tempting to forgo a home inspection in order to move your offer to the top. But that can be a mistake, says Schneider.
“Find a professional home inspector who can alert you to potential problems and educate you on how to take care of the home,” she says.
While the seller might not make all the changes that are advised, at least you’ll have a clear picture of the true state of the house so you can make an informed decision.
8. Limit the Opinion Getting.
While you might want certain people to weigh in on the house you choose, remember that there is really only one person whose opinion matters most, and that’s you. Asking too many people for opinions will drive you crazy, warns Schneider.
“Select one or two people whom you feel confident consulting if you feel you need a second opinion, but be ready to make the final decision on your own,” she says.
9. Be Prepared for Closing.
Among the costs that you’ll need to cover are items like title fees, property surveys, appraisal fees and lender costs, notes Schneider. And then be prepared to sign your name over and over again. It is a small price to pay for the moment they hand you the keys and you are officially a first-time home buyer!