You are finally ready. Your company has made you permanent, that car loan has been paid off, months have expired into weeks before your big wedding day, and you now see that ‘red circle’ in your sleep that you drew on your shrinking calendar to start looking for a home. But let’s face it, both your age and your desire for personal space are now at their very limits. Either of which would be enough to send you into a hard sigh of ‘‘it’s time’’.
“The hunt is on” were the actual words of my company’s latest client as we sat discussing the prospects of what she and her husband could afford before we narrowed down a list of homes we agreed would be suited best for their needs.
Searching for a home can be quite the thrilling experience, but it can turn into a longer than expected mission, often haunted by much heartbreak and discouragement, if you’re not prepared for what lies ahead. So before you hurry off into the real estate abyss, here are five need-to-knows that would make the process of buying your first home much easier-
1. Find out what those pockets can afford
This might seem a tad obvious, I mean, we don’t go shopping for cars with loose-change, do we? Why then would house-shopping be any different? Finding out just how much the bank is willing to lend sets you in motion to narrow (or broaden) your property-search. Without knowing exactly what you can afford, you might fall in love with a property beyond your financial reach, or you might actually be settling for lower quality properties with lower price tags when your wallet might be able to muster up the money to afford higher quality homes. Once you’ve decided the time is right to purchase a home, the next step should be in the direction of a mortgage company.
2. You still need cash, even if you qualify for a mortgage
Sales agreements between a purchaser and a vendor (seller of the property) would require you (the purchaser) to make a down payment of ten percent on the property you are buying. Most first-time property-seekers are aware of this, merci à la HGTV, but are surprised by other purchase-related costs that can amount to the size of the deposit itself, especially if you need financing. Property valuations, attorney fees, bank charges all have to be paid for and are rarely considered when finalizing a budget for purchasing a home. Most real estate professionals recommend that property-seekers hold as much as fifteen to twenty percent of the cost of the home being considered for purchase. Having this much cash in-hand would cover the deposit and all other charges. In some instances, a mortgagee (Lender) may factor-in some of these charges to your loan. However, having cash to pay for purchase-related costs puts you in an ideal position to move forward confidently with a purchase.
3. You’ll need life insurance
I promise I’m not an insurance agent but you've read correctly. Life insurance is necessary for home-ownership. Quite frankly, if you don’t have life insurance your mortgagee may either send you packing or advise you get some. Sure colleagues of mine in the insurance industry are blushing right now, but so should you. Life insurance is a benefit to you. Having life insurance means your mortgage installments are covered by your insurer in the event of tragedy. This means family members that would depend on your income to pay the mortgage would not be left with the burden of picking up the mortgage tab. This is also why the bank needs you to have life insurance. Lenders need to ensure that their loan to you would be paid off should such a tragedy occur. Nonetheless, while home-ownership is a good reason for purchasing life insurance, it should by no means be your only reason. Experienced life insurance agents would not merely recommend life policies to cover mortgages, but would strongly suggest polices that cover mortgages and other expenses left behind in the event of the death of a homeowner.
4. You won’t get your dream home brick for brick
Surprised again? You shouldn’t be. If you are not building your home, or possess unlimited streams of finance, then getting your dream home is impossible. You can, however, find the perfect home that fits your budget, but once you are purchasing a home that is already built you are essentially buying someone else’s idea or dream. That’s right, that kitchen layout and the position of that wall over there were dreamt up by the person who designed the home, not you. You may love what you see but you didn’t see it in your dream, so don’t go unrealistically searching for a dream unless you are willing to build it. The number one reason first-time property-seekers get stuck in the market for years, losing opportunities to live in excellent properties, falls squarely on their ‘dream chasing’. Yes, your money is being spent so you should rack those standards up before you sign the dotted line, but before you get out there looking you ought to sit down with your list of wants and turn it into a list of needs. You may need three bedrooms but you don’t need that gigantic mancave. Decide on what you can compromise on then start looking. You'll regret making the mistake of walking away from the ideal home whose windows didn't seem quite french enough at the time.
5. Location location location!
Where location is concerned, looking for a place to live is pretty much the same as setting up a business. The correlation is simple, areas in more demand cost more. Don’t overlook the fact that the identical home, nail for nail, placed in a different area can cost hundreds of thousands of dollars more. Even if those areas are separated by a few minutes drive. Where you choose to look can affect the price drastically, just as where you choose to set up business can affect your sales drastically. Research your areas carefully before venturing out based on assumptions of the cost of constructing the home alone.
Side note for homeowners: If you are considering upgrading a property that you plan to sell in the near future, ‘upgrade cost’ does not always translate dollar for dollar into market value. Areas all have market value ceilings. Investing three hundred thousand dollars into upgrading a home you paid one million dollars for won’t fetch a market value of one million and three hundred thousand if the area has a market value ceiling of one million and one hundred thousand dollars. It’s like my old boss used to say, “if you put new tires and a fresh coat on a 92, it’s still a 92. Don’t go trying to sell it like it’s a 98”. If you decide to upgrade beyond your area’s market value ceiling it should be done for your comfort and not to reap gains.
Shopping for your first home is exciting but the ride to home-ownership would prove to be a lot less bumpier if you know these ‘need to knows’ upfront. So let the search begin, or in the words of my client, ‘the hunt is on’.