Don’t Make any Major Purchases Prior to Buying a Home
As we have learned from the book “Rich Dad, Poor Dad” there are good debts and bad debts. When it comes to buying your first home, a mortgage is a good debt. Think about prioritizing purchases on appreciating asset over purchases that are depreciating liabilities. It’s a better financial decision to purchase a home first over a new vehicle.
Let’s play the game “Would you rather…”. Would you rather have a luxury vehicle? or Purchase a home in your desired area/location with all the features you wanted? If you choose the vehicle, Consider this, you may have to travel 10-15 miles away from your preferred location to find an affordable home that meets your expectations. Are you okay with that? Let’s look at it a different way, the obligated debt payment on a $300 car payment, could decrease your home purchasing power by $60,000. So ask yourself before, is driving that luxury car more important, than where you eat, sleep, and live? You can apply this would you rather game to any major purchasing decision. Be aware of how those major purchasing decisions can affect you. In life is we have choices, and we are living the life of the compounded choices we’ve made.
Repair/Build Your Credit
If you have excellent credit, KUDOS! skip to the next tip. 🙂 For those that are a year out from purchasing, and you know your credit score is lower than you’d like. Work on it. Meet with a Lender. They can that can look at your credit profile and tell you what things need to get cleared up, or removed. In some cases, it may be best to work with a credit repair specialist that can help get things removed off your report. The reason for repairing your credit score is for two reasons. One, it effects the interest rate you get from the bank/lender. Each lending company has different overlays and depending on where your score is 2 pts could be .15% – .25%. That could have a HUGE impact on your monthly payment. Secondly, it could be the difference of you qualifying for a loan or not. If you’re below a 580, you will likely want to get it improved above 620, which is very doable in a years time.
Get Pre-Qualified Before Looking at Homes
While there are great tools like the “how much home can I afford calculator” by Realtor.com There are things you may be overlooking or not considering. Another reason, you may not know what interest rate you qualify for. I know they have the mortgage calculators, but based on your credit score, obligated debts, Income, Income type, downpayment amount, etc. you may or may not get an accurate quote on the calculator for the interest rate. That calculator can be deceiving. A .25% could be the difference of you finding something you love vs like. You don’t want to set unrealistic expectations. Meet with a lender you like and trust, and know what you’re qualified for, and what your comfortable paying before starting your search. Talk to a Lender.
Know the difference between your MUST HAVES, and wants
Life is about choices. We sometimes are faced with really tough choices. Things we thought are non-negotiables, may actually negotiable once we get down to it. Remember things may not work out the way you hoped or planned. So when looking at homes, prepare yourself for a possibility you’ll be faced with a tough choice. Downgrading from a 2bed 2bath to a 2bed 1bath. That additional bathroom could be the difference of you finding something you love or could be the difference in you being in your desired area vs outside your preferred location.
Realtor.com has a really cool tool that can let you evaluate if that extra bathroom or bedroom, or if a pool is really necessary right away. Click here to evaluate if that feature is worth its value.
Don’t Look More than 5% outside of your price range
Okay, go ahead look 10-15% higher. Before you do, understand the best homes will sell quickly, and you may have NO negotiating power to bring the home down to your price range. Another reason for staying within 5% is you may be disappointed if you constantly look outside your range. It’s okay to see one or two, to put things in perspective, of what you want vs what you can afford. But don’t be unrealistic, and live in dreamland. You’ll set yourself up for failure or create a negative mindset.
That being said, when you do look at homes outside your price range, look at days on market. If a home is priced above your range, and it’s been on the market for more than market average, it could be that it’s overpriced or the condition of the home doesn’t match the listed price. Finally, ensure it is vacant. These are the homes that have a higher probability of negotiating into your range.
Have patience, don’t get discouraged
Inventory levels market wide have recently increased, they are still at a four year low. You may not be finding what you’re looking for right away. Have patience. New homes come to the market every week. Purchasing a home can feel like a roller coaster of emotions. Don’t let this wear you out. Employ some faith and hope. Your dream home is out there, be ready to move when you find it.