If you are like many people, you probably imagine living the American dream and buying a house of your own one day. Picking out the perfect home, decorating however you want, and raising your family in the perfect space are all likely important to you. Buying a home can be a very emotional and exciting time, so there are a few things you should know before diving in to the process head first.
1. It may take longer than you think.
When buying a house, you have many different people to deal with. Your real estate agent that’s showing you all the potential houses, your banker or mortgage agent, the title company, the appraiser, etc. While it is their goal to sell you a house and make money, they have different schedules and time frames they have to follow.
One of the parts that took the longest for us was having to wait on getting the appraisal done on the house we wanted to buy. The appraiser couldn’t even come appraise the house for two weeks, and then it took a few more days to hear back the results. When we finally heard back, the house was appraised for a few thousand dollars less than we had agreed on with the seller. The bank would then only loan the amount of the appraised value (didn’t want to loan us more than the house was worth) so it took even longer doing some back and forth with the seller on the price, getting new paperwork signed, etc.
Just be prepared for any bumps in the road, and start the house hunting process quite a few months before your current lease is up.
2. You may need to be saving for more than just the down payment.
In addition to the at least 3.5% down you will need for an FHA loan, or the 5-20% down for a conventional home loan, you will most likely need to pay some closing costs as well. Closing costs are basically fees and charges someone has to pay in the process of the home selling transaction. Things like loan origination fees, the cost of the appraisal, the cost of the inspection, etc are all considered closing costs. A lot of the time, the sellers pick up most of the closing costs (that’s how it was for our house) but that’s not always the case. If you’re in an extremely competitive environment for example, the sellers may take an offer where they don’t have to pay as much in closing costs. You may split them down the middle, or end up paying more in exchange for a lower price on the home. There are many different scenarios, but just keep in mind that you may need to bring a few thousand dollars more to the table when it comes time to close.
3. If your life situation changes in a few years, you may not be able to move.
When you’re buying a home, you’re probably imagining you and your family in it for years (or decades) to come. But sometimes life gets in the way and plans change. You may need to move back closer to home, or you may decide that city life sounds more like you.
For whatever reason you decide it’s time to move, but it’s not as easy as when you were renting. When you are renting an apartment or rental house, you can wait for your lease to be up and leave, or you can usually break your lease early and pay a fine. When you buy a house though, you are stuck with it until you can re-sell it. It might not sound too hard–just put it up on the market and wait for a good buyer to roll in. The problem is that you may not get back as much money as you need to get out of the deal. First you will have to pay off the mortgage, and since you haven’t been in the home very long and most of your payments are going to interest, your mortgage will be pretty close to the same as when you bought the house. You also may have to pay some of those closing costs again, depending on what you work out with the buyer. Finally, you are going to have to pay the real estate agent to sell your house for you. At fees of 6 to 10%, you could easily expect to cut a check for thousands of dollars when the home sells.
Add all of this up, and you may simply not have enough money to sell your house. If you do have to move no matter what, you could find yourself still paying a mortgage on a house you don’t even live in, in addition to the rent on your new place.
Buying a home can be one of the most exciting parts of life. But it’s important to stop and think about some important things before taking the leap and making probably the largest purchase of your life. Know that it can be a very time-consuming process, you will need quite a bit of cash saved up, and if you need to get out fast, it may not be possible. Buying a home is a very exciting and rewarding time, and it’s all the better when you are prepared before-hand.
Are you considering buying a home? Or have you already bought one, and found yourself experiencing some of the issues mentioned above? Tell us your story in the comments!