Urbanisation has increased the interest in buying a house. House hunting comes with making many decisions and should not be done in a hurry.
However, finally moving into one’s dream house comes with a sense of satisfaction and fulfilment of being free from the limitations that come with living in a rental apartment.
One cannot err in making adequate research about the area, the structure and the price. Asking the right questions and identifying potential issues about the property would go a long way in making informed decisions.
Asides from this, the ability to afford the preferred house, as well as the payment plan, is a factor that determines the reality of being a homeowner.
Also, one needs to consider one’s lifestyle, needs and future goals before the decision is made.
Below are some necessary things to consider before sealing the deal on buying a house.
Understand your debt-income ratio
Affordability is relative. One needs to understand one’s debt-to-income ratio.
Reyna Gobel of Investopedia stated that the debt-to-income ratio “is used to determine if the borrower can make their payments each month” after all the other debts have been paid. This ensures that the homeowner can spread the payment of the house, after the down payment, for a particular number of months or years as agreed by the realtor or seller.
The United States Federal Housing Administration issued a 43 per cent DTI standard as a guideline for approving mortgages. This however does not apply to potential homeowners who have sufficient means to buy a house at once.
Gobel said, “A 43 per cent DTI means all your regular debt payments, plus your housing-related expenses—mortgage, mortgage insurance, homeowners association fees, property tax, homeowners insurance, etc.—shouldn’t equal more than 43 per cent of your monthly gross income.’’
Finding a real estate agent
What a real and trusted estate agent is to a house buyer is what a lifeguard is to an inexperienced swimmer. Although some people might be hesitant to use a realtor because they believe there will be “additional cost” that comes with their services, one needs to bear in mind that the seller also pays the commission.
A real estate agent in Philadelphia, Brooke Willmes, stated that a listing agent (the agent representing the seller) doesn’t protect the interest of the home buyer but to “pocket both sides of the commission.”
This however becomes a loss, therefore, Kelly Erb, a taxation lawyer and contributor at Forbes, says, “A savvy realtor who works for you can protect your interests and guide you through the buying process – from negotiating a price to navigating home inspections.”
Research the neighbourhood
Every neighbourhood has a definite character and what it is known for. Every genuine realtor has such information.
Military.com advised any potential home buyer to type in the address of such a community on a web search engine to read up on news or events about the locality. Using a Google map, one can see photos of what the streets and surrounding buildings look like.
Also, hearing from potential neighbours, other fact-based databases provided by the government detailing the types of criminal activity in the area as well as information from one’s real estate agent could provide direction on what one needed to know about the area.
A personal finance writer with GoBankingRates, Jennifer Calonia, stated, “While the home may align with your aesthetics now, communities change over long periods of time. Traditional neighbourhood development projects may include positive changes that affect your home value (e.g. a recreational park, school, etc.), but they can also bring about unwanted changes to your surroundings.’
“Aesthetic changes like a highway overpass directly behind your property or a new railway system one mile away that can be heard in the late hours may be a necessary feature in the city, but can cause dramatic influence over home values.”
Calonia advised home buyers to visit the town or city’s town planning department to “review upcoming plans for community improvements and existing zoning regulations.”
Consider your lifestyle needs
Planning for the future is a crucial decision to consider when buying a house. These plans would determine if the preferred house would still be one’s favourite in the near future. For example, some neighbourhoods that are strictly for residential purposes would not favour a potential homeowner who would like to convert a space outside the apartment to a mini office or depot.
Military.com advises house hunters to have a detailed non-negotiable list showing exactly what they “require from the house, and what they wish to have to have in a home” such as a list of top amenities they prefer.
Gobel posed some salient questions such as ‘is your need for extra space imminent—a new baby on the way, an elderly relative who can’t live alone? Does the move involve your kids changing schools?”
Also, Erb advised that one’s long term plans should be put into consideration. She said, “Don’t necessarily buy for the life you have today. Chances are that buying a house will be one of the bigger financial commitments you’ll make in your lifetime. Before you agree to buy what you think might be your dream house, consider your long-term plans. Are you planning on staying at your current job? Getting married? Having kids? If you aren’t sure that your house will be the house for you in a few years, you may want to keep looking.”
Think about commitment
After paying the agreed amount as a down payment, paying up the bi-weekly or monthly payments might be a challenge one must be strategic about.
Gobel noted, “Before you practise making mortgage payments, give yourself a little financial elbowroom by subtracting the cost of your most expensive hobby or activity from the payment you calculated. If the balance isn’t enough to buy the home of your dreams, you may have to cut back on your fun and games—or start thinking of a less expensive house as your dream home.”
Also, Erb dwelt on the bigger picture of what would happen when things go south. She advised that for couple (whether spouse or partners) homeowners, should plan in accordance with the law of the state including written and agreed upon in case of eventualities.
Erb said, “When you get married, the laws of your state generally determine how your assets are treated- and ultimately how they’re distributed at divorce. The same rules don’t necessarily apply when you’re not married. That means you need to think long term. When you buy a house with your significant other who is not your spouse, make sure you have an exit plan if things don’t go the way you hope. It’s a good idea to have an agreement in place with respect to titling, mortgage payments and liability, repairs and the like: it’s best to get it in writing, I’d recommend getting a lawyer.”
Age of the house
It is important for a potential home buyer to have a preference for the type of home they want. For example, one can prefer older houses or be interested only in newly built houses.
Once this decision is made, Gloria Russell, an author with Homeia.com, advised one to be on the lookout for building codes of how houses were built at a particular time.
Russell stated, “Older homes can have a character that appeals, and they may also need more repairs and upgrades. Make sure you have the time, inclination and budget to enjoy managing these projects.
“Building codes change over the years, and it would be good to have a basic understanding of some of the more impactful differences when looking at homes built under a different set of rules. Your realtor might have this knowledge or would know where to find the answers. If you’re looking for a certain vintage and style, you might already be aware of how homes were constructed at that time.”
Do you plan to stay put?
Planning to stay in the long run apart from affordability is another factor to consider when buying a house. This, however, can largely depend on one’s job and profession.
Nonetheless, Gobel advised, “If you can’t decide what city or town you are going to live in and what your five-year plan is, it may not be the right time to buy a home. If you want to buy a home without a five-year plan, purchase one that is priced much lower than the maximum you can afford. You’ll have to be able to afford to take a hit if you have to sell it quickly. Another exception: If you work for a company that buys the houses of relocated employees—one name for this is a guaranteed buyout option.”
Location
The location of one’s potential house further determines the accessibility to one’s place of work, children’s school, grocery store, bank and other to-go places.
Konrad Sopielnikow from Fortune Builders advised potential house owners to “Be sure to pay special consideration to the area in which you buy your house. You will want to be sure that your property has easy access to your work. You may also want to consider the house’s location within its neighbourhood as some people prefer to be tucked away from busy streets, and others prefer to have more access to main street roads.
Russell also stated that the location of the home within the neighbourhood was important to many people. She said, “Some people prefer a lot near the main entry, while others like to be away from traffic and further into the development.
“If there is a park, pool or recreation area, some owners would choose the closest available lot. Cul-de-sacs are favoured by some and some people like living on the main boulevard. Talk about your preferences, and ask your realtor if certain lot locations bring a higher purchase price.”
Size
This includes the size of the property, building design, number of rooms and available appliances.
Sopielnikow said, “The size of the lot your house is on will impact various aspects of your home’s uses and potential, so you should consider this before making your purchase. The shape of the lot will affect your privacy, and if you have a preference in the shape of your lawn or the length of your driveway, you may want to consider the lot shape.”
One must also consider the available number of bedrooms and if there are options of remodelling or adding on to the property.
Negotiate the contract
Erb emphasised that “a house purchase involves a contract. When you’re buying a house, there are papers to sign. And more papers to sign. Many of those papers – which are actually contracts – look like “standard” home buying contracts with no room for negotiation. That isn’t true. Contracts are meant to be negotiated. You don’t have to sign a standard agreement. If you want more time to review your inspection, or want to make a purchase subject to mortgage approval, you can make that part of the deal. That’s where a savvy realtor can help.”
Sources: military.com, fortunebuilders.com, forbes.com, homeia.com, realesate.usnews.com, investopedia.
