Best-Kept Secrets for Home Buyers
Buying a home is undoubtedly one of the most important financial decisions most people will ever make. Although a home is a huge financial investment, it’s also much more than that. Buying a home is also one of the most important decisions when it comes to raising a family and establishing a lifestyle. In other words, it’s not a decision to be taken lightly.
The home buying process is a complex one, and there are countless things you need to know when buying a home. Many of the basics are well-documented, such as determining your budget and choosing the right location. But there are many lesser-known hints about home buying that new buyers might not be aware of. Following are some of the best-kept secrets for home buyers.
Know the Market
Sure, “buy low, sell high” is great advice for any transaction. But it can be easier said than done for buyers, especially in the greater Sacramento area, where prices are elevated. Real estate looks a lot different in Sacramento than it does in other parts of the country, so the same advice doesn’t hold true across the board. Rather, it’s important to do your research on the local market to understand its nuances before you start your search.
Understand Hidden Costs
A $2K/month mortgage payment is not equivalent to a $2K/month rent, and comparing the two is like comparing apples to oranges. Many home buyers are unaware of the “sleeper costs” of home ownership — those expenses that are missing in the rental world. These include mortgage insurance (for buyers who do not have the required down payment); utilities, which are typically included in rent; property taxes, which can bump the monthly payment; and home maintenance expenses like lawn care, HVAC servicing, etc. Many buyers also fail to consider the cost of moving itself, which can range from $800–$2,150 for short-distance moves and as much as $5,700 for long-distance moves. Closing costs are another expense that some buyers may not consider — and they can be as high as 4 percent of the home’s purchase price.
It may sound discouraging, but the reality is, rarely, if ever, does a home check every box. It can be hard to find a home with every wished-for amenity in the perfect neighborhood and at the perfect price. But savvy home buyers know that’s OK — in fact, it’s sometimes a blessing in disguise. The best way to find a “perfect” home is to make lists of must-haves and nice-to haves. For example, location and price are usually non-negotiable, but a lack of cool amenities shouldn’t necessarily be a deal breaker.
Know How Much You Can Afford
Buying a home isn’t as simple as choosing how much you’d like to spend each month. In fact, lenders have guidelines in place to protect themselves against default. At the heart of this is the debt-to-income ratio. In essence, this is all your monthly debt payments divided by your gross monthly income. The higher the percentage, the less likely a buyer is to qualify for a loan. The absolute maximum DTI is around 43 percent, but most lenders prefer it much lower. Anything below 30 percent is considered ideal, and can help you prevent becoming “house poor.”
Size Isn’t Everything
The bigger, the better, right? Wrong! In real estate, it’s important to factor in all the pros and cons of a home, not just size or amenities. A 3,000-square foot luxury mansion on a street lined with 1,000-square foot bungalows isn’t a good investment, it’s a liability. It’s often better to find a modest house (or even a fixer upper) in a desirable neighborhood, especially if you are able to remodel or add on in the future. It’s much more important to find a home with good bones.
Many home buyers, especially first-time home buyers, are unaware of a little-known fact in the mortgage world: spending money, especially on credit, can kill the deal. It’s natural for soon-to-be homeowners to want to buy furniture and appliances for their new space, but doing so on credit can jeopardize their credit score (and their DTI). Lenders watch an applicant’s credit status up until the day they close, and if they see huge transactions they may deny approval. Similarly, closing credit accounts can also impact your credit score, as can moving money around between accounts or changing jobs, so try do so before the process begins or after you close.
In the fast-paced Sacramento-area real estate market, offers can pile in within minutes of a home hitting the market. To remain competitive, buyers have to come prepared. The best way to do this is to get pre-approved for a loan before you start house hunting. Not to be confused with pre-qualified, pre-approved means your lender has already verified your financial information and has let you know how much you can afford. Not only does this help your chances of acceptance once you make an offer, it can help save you time during your search by narrowing down your options.