Purchasing your new home can be either a lot of fun or can be very stressful. Which one it will be may depend on how well you are prepared for the home buying process!
According to government census data, new home sales are strong, with June data showing continuing slight upward trend since 2012. Similar results are found for existing home sales. Data gathered by the National Association of Realtors research website provides a whole host of information. Now is always a good time to evaluate the market situation with your goals and determine if buying a new home is right for you.
Whether going for new or existing, purchasing your new home may be the biggest purchase you will ever make, one that is an enormous investment with plenty of long-term potential. But, if unprepared, the process can come with a great deal of unanticipated stress that can diminish the joy of searching for that new home.
Some of you are actively in the market and hope to become first-time homeowners. Others are looking to trade up, while some may be contemplating the possibility of downsizing into a smaller home.
For first-time home buyers, the process can be daunting. For those who may soon downsize, it may have been many years since you’ve purchased, and the process has changed.
To help minimize the unknowns, I want to include a checklist of items you may want to consider when purchasing your new home. Understanding these basics, arming yourself with the right information, and putting a plan in place will help ease the stress and enable you to successfully land the home that’s right for you.
Putting at least 20% down is ideal. It avoids the need to purchase mortgage insurance and communicates to the seller that your finances are strong.
If you don’t have 20%, there are programs for first-time buyers that allow you to put down as little as 3-5%, but expect to pay mortgage insurance. If savings is an issue, start today! Bonuses, tax refunds, and automatic drafts can be socked away. Family gifts can go toward your down payment.
If you are downsizing and have owned your home for many years, you may have plenty of equity. In fact, you might just be able to purchase your new home with cash. This may or may not be the route you should take, but we’d be happy to offer our thoughts on whether an all-cash offer is the most appropriate avenue.
Consider All the Costs
Many first-time buyers forget to factor in property insurance, homeowners insurance, private mortgage insurance, utilities, and homeowners association dues, if required. You should be able to get estimates of these costs from a real estate agent.
For those looking to downsize and head into retirement, you may be balancing a different income stream with a new monthly payment, even if principal and interest aren’t part of the mix.
We can look at all these numbers and offer our analysis on your bottom line financials. But only you can put a price on the intangibles – a new community, living closer to family, your grandchildren, or your kids.
Know Your Home-Buying Financial Numbers
Speaking of the numbers, you can do some homework to determine how much you can reasonably afford each month for your new house payment. Banks will look at these key number to determine how much they will loan you for a given house.
- Credit Card Balances
- Debt-to-Income Ratio
- FICO Credit Score
Doing your homework in advance can save you time, money and potential disappointment. If you want to learn more about how these numbers are calculated, and many others related to your personal financial health, check out our complimentary report. You will find a wealth of information and learn about your financial health!
Your financial planner is also a good source of helping you sort through these numbers to help you determine how much house you can afford and aligning your finances to your goals.
Secure the Services of an Experienced Real Estate Agent
A good agent is worth his or her weight in gold. Typically, the seller pays the commission, so it behooves you to enlist the help of an experienced professional. He or she will explain how the commission works.
An experienced agent knows the ins and outs of the market, how to best handle the many details you are sure to encounter, and how to negotiate with the seller.
If you have owned your home for many years, you may not know that new listings get posted on the internet hourly. Gone are the days when you get into your agent’s car and receive a list of homes you will be seeing that day. A good agent will empower you by setting you up to receive new listings via email based on your specific criteria.
And don’t be afraid to be proactive by researching websites that accurately reflect what’s available. If you spot something of interest, your agent can set an appointment.
Finally, some buyers don’t realize they can enlist the help of an agent when looking at a new home. But bring him or her along on your first visit to the models. In fact, some builders require an agent to accompany you on the first visit.
Pre-Qualified vs Pre-Approved
At a minimum, get pre-qualified. It only takes a few minutes through your bank and it tells the seller your credit is solid and your income is adequate to handle the mortgage payments.
In some areas, today’s market is extremely hot, and multiple offers aren’t uncommon. If this is the case, your agent may recommend you get pre-approved with a lender before submitting an offer.
The process is much more detailed, and will require tax returns, W-2s, recent bank statements, paystubs, and more. But once you are pre-approved, it enhances your position with the seller, as it communicates that you are financially solid, almost eliminating the odds your financials will sink the deal.
Either way, your lender will require extensive financial information. Having the information readily available will ease the process.
This one is important! If you’ve signed a contract but haven’t closed on the house, don’t quit your job and stay away from purchases that require new debt, such as an auto loan! In either case, you may completely ruin your debt-to-income ratio, and your loan will fall through. Roughly translated: You won’t get the house.
Get the Home Inspection
In very hot markets, some buyers are willing to waive a home inspection to entice a seller who has received multiple offers. While inspections have limitations, you are rolling the dice if you forgo a comprehensive review.
Attend the inspection and ask questions. One more thing: minor cosmetic issues that could surface may or may not be worth bringing to the seller’s attention in a very tight market. Do you really want to lose a house over a small issue? Again, an experienced agent can guide you.
Bottom line — Purchasing a new home is a significant undertaking, but one that can be wonderfully rewarding. Preparation and research is well worth the time for what may be your biggest investment and a place you will call home for many years.
About Kastler Financial Planning
Mike Kastler is a Master of Science in Finance and a fiduciary to his clients, meaning the only fee he receives is the fee paid by his client. We put your best interest before our own. No product sales, no commissions and no account minimums.
We serve middle-income America – individuals and families just starting out, do-it-yourselfers and those nearing or in retirement. Services include advice in the areas of cash flow management, risk management, investment planning, retirement planning, education funding, tax and estate planning. Our services are tailored to the unique needs of our clients. Fees may be hourly, project-based, or a set fee based on Assets Under Management.
Investment advisor representative of and investment advisory services offered through Garrett Investment Advisors, LLC, a fee-only SEC registered investment advisor. Tel: (910) FEE-ONLY. Kastler Financial Planning may offer investment advisory services in the State of Michigan and in other jurisdictions where exempted.
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Kastler Financial Planning | Ortonville, MI 48462
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