Best First Steps to Buying a Home: Part One
Take a look at this checklist to get started on the road to homeownership!
So you think you are almost ready to buy a home, and you’ve been looking online at listing after listing to figure out what you want, but more importantly, what you need in a home.
You have considered things like the number of bedrooms, school district, location, style, square footage, move-in ready, or something that you are inspired to make your own. In the counties that we cover (Lee, Fayette, Bastrop, and many others), it is likely that you are looking for a home in the more rural region of Texas, and there are plenty of things to consider before moving forward.
While these things are exciting to explore, there are a few things you need to focus on before making appointments to tour homes in person with an agent. Your future self will thank you for proactively preparing and checking if you are financially ready to make one of the most significant purchases of your life. These tips will save you money, stress, and time:
- Am I financially healthy?
Are you living paycheck to paycheck or do you budget and save? If you track expenses and have a good idea of where you stand in terms of your finances, then it might be time to locate some info to see if buying a home would be a financially healthy thing to do:
- Net monthly income (after taxes/deductions)
- Investment and savings account balances
- Credit report/credit score
- Debt (current balances and interest rates)
- Fixed expenses (ie: monthly bills including insurance, utilities, etc.)
If you spend money as quickly as you make it, you might need to reconsider the home purchase and get serious about making a financial plan to save for a home in Giddings or Round Top. If you have significant credit card debt, other debt, or no emergency savings fund with 3-6 months of expenses stashed away, then prioritizing paying off the debt or increasing savings may be a better decision at this time.
- How much do I need to save for a downpayment, closing costs, and other costs of moving? If you already have significant savings stashed away, you can safely skip to step 3.
Consider putting as much down on the house as you can in order to have more favorable financing terms. Putting down the smallest downpayment possible can end up being an expensive decision in the long run. Paying less than 20% down can cause you to have expensive PMI (private mortgage insurance) premiums. These are in addition to your principal balance, and they do not apply if you put down 20%+.
PMI doesn’t protect you; PMI protects the lender in case you default on the loan. Some lenders may allow you to drop the PMI after you have 20-25%+ equity in your home.
Keep in mind that you need to be prepared to purchase a home without dipping into your emergency savings – which can be risky (it’s called an emergency fund for a reason!).
Closing costs (lender fees/title company fees/prepaid taxes and insurance) also need to be considered, and these can be up to 6% of the cost of your home. An experienced REALTOR can help you negotiate a contract where the seller may be able to help you with some of these costs (more about choosing an agent in Part 2 of this series).
- How much can I spend on a new home?
Once you know your income, debt, and savings, you can determine what you can afford to spend on a monthly house payment. This will include your monthly payment (sometimes called PITI – which stands for Principal, Interest, Taxes, and Insurance – property taxes and home insurance are usually maintained and paid by your lender via an escrow account).
You will also need to budget for any expenses you haven’t been paying for in your current housing (ie: HOA payments, lawn care, landlord-provided utilities/amenities) as well as home maintenance items such as roof, water heater, home improvements, etc.
While your lender (choosing a lender is in Part 2 of this series!) can help you figure out what you can afford each month, it’s a good idea for you to try to determine a monthly payment that you will be comfortable with while also considering your other financial goals.
- What features or priorities am I looking for in a home?
Whether you know it or not, you’ve probably got some expectations of what you want in your future home. Be sure to write those expectations down, explore possibilities, and double-check on what should be considered a priority.
Do you want a guest bedroom with a connected bath? Are you looking for a kitchen with an island? How many acres is best for you and your family? Do you want to be closer to another city, such as Austin or Houston? Are you looking for farm or ranch property as well? Being aware of various styles or expectations before you start house-hunting with your agent can be helpful in the future search.
You can get ideas and inspiration through looking online, stopping at open houses, or even making mental notes as you drive through residential areas. Being able to communicate your ideas with your real estate agent will help streamline the process and allow for your agent to better focus on the preferences you want.
However, keep in mind whether you feel comfortable with a fixer-upper or not; this will also determine what houses your agent may have you look at. If you would prefer to have a house that is as move-in ready as possible, then it is likely that you will not want to look at houses that will require some time and modifications. If you are prepared for that, then great!
Keep on the lookout for part two of this blog post!
In the meantime, if you have any questions or need information related to purchasing a home, feel free to contact any of our REALTORS at Schultz Texas Properties, and we will be happy to sit down with you. Talk with us about your home-buying needs at our offices located in Giddings, La Grange, and Smithville.
We are experienced in working with first time home buyers, or if you are purchasing again and feel like a first time home buyer, please give us a call! We would be happy to assist you in finding and purchasing your new home in central Texas.