You’re ready to take the plunge and buy your first house. It feels right, you feel ready, but you still need to keep your wits about you. If this is your first home, the information overload you just ingested walking into this investment is the likely culprit pushing the basic questions – and requisite follow up questions – out of your head and into the ether. Once they’re out there, they’ll only come back into focus once it’s too late and you’re saddled with a problem you wished you anticipated before closing on this house. A little too late, don’t you think?
You may find yourself in a similar situation after a breakup or divorce; you wish you knew this issue that became an immovable impasse was coming so you could’ve avoided it in the first place and saved yourself a lot of heartache. While it’s better to have loved and lost than to have never loved at all and it’s better to buy than rent, things happen when you were a little bit too careless in the beginning stages of things when you perhaps should’ve been more deliberate. You want to make sure you’re making the right decision for you and the long term vision you have for your life.
You’d ask some basic, but important questions before you get married to a partner, so why not ask the same of your house? Marriage is a different kind of investment to be sure and you can always break up or divorce. You can similarly sell your house and move if you can’t make it work where you are, but much like a divorce, moving and selling your home is unfortunately very expensive and time consuming as it involves severing layers of legal ties and a lot of emotional baggage. The same way you’d ask a potential spouse what they want out of their life so you can ensure you’re mutually on your way to a similar vision, you can ask similar questions about a prospective property by researching statistics to predict trends and get more specifics.
Here are the three questions you have to ask yourself before you buy your first house. They may seem basic or even obvious, but they’re secretly a lot deeper than they seem:
What features am I looking for in a home that I wish I had now?
When it comes to the size of your property, number of bedrooms, bathrooms, and the availability of a home office, you have to think through the consequences of having more. More of what? Anything. The same way you’d need to budget for a team of groundskeepers if you lived on a palatial estate, for example, you can evaluate the innate risk of your home. Do you have reserves for repairs? If you’re buying a home with one bathroom and your shower stops working, you’re a little screwed, right? The location may be great, but will your commute add or subtract from your expenses?
Ask yourself if this home has the potential to meet your needs for the next five to seven years of your life. Assessing what features you’re looking for in a home that you wish you had now will help you distill what features are absolutely necessary and what are auxiliary luxuries that you can do without because here’s the important underlying follow up question: outside of my mortgage, how much money can I comfortably spend per month as a direct result of me owning this house? For example, if you don’t have the reserves to repair that one bathroom in an emergency, this leads you to two possible conclusions if you can’t afford it. Your options are either ensure that a home warranty is part of the purchase agreement or reassess and see if you can afford to buy a home with a second bathroom. It’s better to know these things and have a plan of action ahead of time.
What am I buying with this location?
As we just discussed, location can either lessen or increase your commuters budget for work and either close or increase the distance between you and your loved ones. However, for more universal reasons, location is a function of demand. This means that the more desirable a location is, the more demand there will be to live there, so there’s likely a higher property cost, competition amongst other prospective buyers, and it’s likely there’ll be a population increase you can anticipate with this alluring location.
The prospects of the town you’re buying in like the specific neighborhood, quality of the public school system, crime rate, proximity to entertainment and if applicable, an industry that employs a lot of specific workers, are things that every potential homeowner is evaluating, not just you. So, while somewhere might be up and coming and under the radar now, will you be comfortable with the increased population and potentially gentrification within the next eight to ten years? You’re buying a future with this investment and it’s not just yours, it’s the future of this location. Suss out what’s the most important quality to you and then see where and how it’s trending as it relates to what you need versus what you want. What can you compromise on without compromising your own needs and how will that impact your quality of life and your overall budget?
What is an approximate figure for your closing costs?
Surprise! You thought you prepared for every way you’ll be spending your money. Think again! What few people tell you about getting a mortgage is that you’ll also be contending with closing costs. These are things seasoned homebuyers will know to anticipate, but with your first home, this piece of information may fall through the cracks due to overwhelm. That’s okay! You’re here now and now you know better so you can do better.
Don’t let closing costs be a last minute wet towel. Ask your mortgage lender for a summary of these closing costs by using a mock house in your price range. Sometimes a lender will float your interest rate to see if they can better rate for you, or make more money for themselves, so it’s a win/win if you start this conversation. Ask your lender how they will decide when to lock your rate. Next, you can predict the trend of interest rates by watching the yield on the 10 year bond for clues on where they’re going.
Don’t forget, everyone started out as a rookie. You can’t make up for lack of experience because time is linear when it comes to these things, but you can compensate for the knowledge gap by asking yourselves these three important questions.