Home Purchasing Tips

Purchasing a home can be a HUGE task – especially for a first-time homebuyer.

In hundreds of financial counseling sessions, I may not have seen it all, but I have seen a lot.  So here are some tips to make your home purchase a winner.

  • Don't buy a house that has a total house payment (principal, interest, insurance, taxes) greater than 25% of take-home pay.  The bank will lend you far more than 25%, but trust me.  If you go purchase a house that has a payment of more than 25%, you will start really feeling a pinch on your overall lifestyle.  Your entire existence will be focused on making the house payment.
  • Put down at least 5% of the purchase price.  Even better, make that 20%.  You can purchase a house with 0% down or 3% down, but to obtain a conventional mortgage with the best rates, you will need to put down at least 5%.  However, if you do not put down at least 20%, you will have to pay PMI (private mortgage insurance) and that will cost you $500 to $1,000 or more more year!
  • Buy a house that is at the average or lower of the other houses in the neighborhood.  This allows better opportunity for your house to increase in value.  When you are the largest and most expensive house in the neighborhood, you stand a good chance of have a decreased growth rate in your home's value.
  • Wait overnight before signing a contract on a house.  You will think more clearly about a house when you have slept on the purchase decision.  It also puts separation between you and the emotion of the house.  This allows you to make sure it is a good financial decision.
  • If you are not convinced that you will be in the house for two years or longer, consider NOT purchasing a house.  Renting is so much easier in short-term situations.  Yes, you might have to pay to break a lease, but it is WAY easier than preparing a house to sell, actually selling it, and then closing on it.

OK commentors – What are some tips you want to add?

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  1. Julie Brown on August 7, 2007 at 3:29 am

    Get an idea of what the bank will loan you and how much you want to spend on a house first. Then stick to it. Ask the realtor to only show you homes in your price range. It is way too easy to say “Oh it’s only another $100 a month – we can swing it if we just cut out X”.
    By the way, I thought I heard several months ago that soon it would not be possible to buy a home with no money down? Anyone else?

  2. Amy Moyer on August 7, 2007 at 7:23 am

    When you are figuring out how much cash you need on hand for the down payment, also figure in all of those “new home” expenses. Do you want new furniture, curtains, paint? Are there repairs that need to be done right away? If you do not have the cash for all of that stuff, can you be patient and get the “stuff” little by little?
    When we bought our fixer upper, it was so tempting (and still is) to go ahead and make those purchases even though we did not have the cash. Because we talked about it and planned ahead, we have managed to stay on our budget! Having no credit card payments makes it worth the wait!

  3. Paul Moyer on August 7, 2007 at 8:04 pm

    MY WIFE IS SO HOT! Especially when she is talking about money.

    Watch out for you closing costs. The bank will try to keep bumping up different fees. Make sure you know if any points are involved and what the amount you need to have at closing. You don’t want to get stuck borrowing money from a family member just to close the loan.

    Many of the new mortgages out there have fixed closing costs, no closing costs, or just a great deal of transparency in this area. This has been a sticky part of the home purchase for a long time and the banks are finally listening to the consumer.

  4. Travis Roberts on August 7, 2007 at 8:49 pm

    We are building a home and I am blogging about it. What makes us so different is that I am the general contractor and I am doing and sub-contracting the work out. An example is that I have done all grade work, constructed a 900ft driveway, dug footers, and I am not pulling electrical wires. Even if we put no mpney down (we are by the way) we will have over 25% sweat equity up front. This may be more.

    Great points, the 25% figure for a monthly house payment is right on the….money.

  5. Travis Roberts on August 7, 2007 at 8:51 pm

    I meant to say I am “now” pulling electrical wires instead of “not.” Hey, after work I pulled another 8 hour day pulling those wires. Sorry

  6. eric on August 8, 2007 at 7:36 pm

    watch out for corner lots!
    you actually have TWO front yards. sometimes neither one of these can be fenced in and there are some other weird laws about front yards.

    also, do your final walkthrough IMMEDIATELY preceeding the signage of the mortgage. you don’t want to spend your first day in your new home (especially if it’s your first or you’re cutting it close with the rent in your old palce) cleaning and cleaning and fixing and cleaning.

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