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10 things to know before buying a home

Expert tips for finding a new home.

Couple sitting on the front steps of their new home

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Buying a home can be very exciting. You stop giving your money to a landlord every month and start investing in something that’s actually yours. You have your own place to entertain friends and family, serve as your personal Fortress of Solitude and act as a home base to put down your roots in a community.

Purchasing a home is a big step, though. For most people, their mortgage represents the biggest financial transaction they’ll ever make. With that in mind, it’s important to make sure you’ve considered all angles as a first time home buyer.

Here are 10 things to consider in the home buying process before you hit the neighborhoods.

In this article:

1.  Buying a home is still a worthy dream

Home ownership comes with many rewards. If you can afford it, it makes sense in many US markets to buy a home. Let’s say you are on yearly contracts to rent. Odds are, your rent is going to go up a bit every year. How much depends on demand, but you don’t have payment certainty.

With a house and a fixed-rate mortgage, payments stay steady over time.

Property taxes and homeowners insurance could change over time.  However, even here there are advantages over renting. If you’re renting an apartment or a home, you would likely be paying for renters insurance anyway, so this can be a bit of an even trade. And sure, taxes are a fact of life, but remember you’re contributing to your community, helping to pay for things that benefit everyone, like public education, fire protection, streetlights, parks and playgrounds.

Because it’s your house, every time you make a payment on your mortgage, you gain a little more equity. Some homeowners choose to  convert this equity into cash and use the cash in a variety of ways. For instance, you could build that sweet home theater you’ve always wanted.

Beyond the financial benefits, there’s also something to your home being yours. You can paint the entire house maize and blue if you want to (or if you don’t want to go too crazy, just the man cave).

2. The down payment requirement is probably lower than you think

One of the more daunting obstacles for those thinking about buying a home is saving for a down payment. Especially as a first time home buyer, you may be discouraged by this part. However, you may not need as much as you think.

It used to be commonly accepted logic that you needed at least 20% down in order to buy a home. While there are advantages to a higher down payment, including the potential for a lower mortgage payment, better interest rates and the ability to avoid paying for mortgage insurance, you can often get into a home for as little as 3%–3.5% depending on your median FICO® Score.

Don’t get me wrong. On a $200,000 house, a 3% down payment is still quite a bit of money, but it’s much more attainable. You just need a little bit of diligence and a savings strategy.

There are special mortgage loan options that don’t require a down payment. For example, if you’re an eligible active-duty servicemember, veteran or surviving spouse, you may be able to get a VA loan. Also, if you live in a qualifying rural area or one that’s just on the outskirts of suburbia, you may be able to get a loan through the USDA if your income is within certain limits.

3. YOU have to be comfortable with your budget

You’ve decided it’s time to take the plunge into homeownership and have started saving for a down payment. But how much can you actually afford?

You can and should do some back-of-the-napkin math by looking at your monthly income and expenses to see what you would be comfortable with in terms of your monthly payment, but you should also get a mortgage approval from your lender.

Also referred to as a mortgage pre-approval by some in the industry, a mortgage approval is the process by which a lender takes a look at your financial situation and determines exactly how much it is willing to lend you.

Because you could be in a competitive offer situation, your mortgage approval will always be based on the absolute highest amount you can afford for a monthly payment, according to underwriting calculations. You should always think about your overall financial state and not immediately look at houses at the top end of your budget. Careful consideration of your budget, no matter what anyone says you can afford, could help you create more wiggle room for those unexpected life events like a medical emergency or future job loss.

4. It helps to find a real estate professional

When you’re home shopping, it’s tempting to look at listing websites and think you know exactly what’s going on in your local housing market, but real estate agents are pounding the pavement everyday buying and selling homes. They have an understanding of prices and what’s available out there that someone who only looks at homes once every 10 or 15 years couldn’t possibly hope to have. A real estate agent can help you with all of the following tasks:

You’ll want to find a real estate agent with a good understanding of your needs and desires, knowledge of your local market and experience handling transactions for homes in your price range. This can make house hunting easier, and they may even find properties that are not listed on the places where you’re looking.

5. You may be able to get a better deal in the fall and winter

If you’re willing to brave chilly weather when shopping, your pocketbook may thank you. It’s no secret that there’s been a lack of inventory in housing for the last several years as existing homes aren’t coming onto the market very quickly and builders are also struggling to keep up with demand. Although the inventory problem is getting better, it’s been a slow process.

Still, there are peak home buying seasons. People tend to want to purchase homes in the spring and summer. Young families want to get settled in their new homes before kids go back to school.

If you find a property that goes on the market in October or November, the sellers may be motivated to get rid of the house and be moved into their new place by the holidays. If the property has been on the market since the summer, the seller may be willing to negotiate on the price, although you should make sure the price is the reason it’s been on the market that long.

There’s empirical data to back up the fact that prices level off in the winter. Although prices have been steadily rising due to a lack of supply, there are still points in the winter months when price increases slow down or even level off.

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6. Put forth your best offer

One part of the home buying process that every person should be prepared for is the offer. When it comes to your offer, you should know there’s more to it than the price of your bid. There are a few intricacies to making the right offer.

7. Sometimes appraisals come in low

When you buy a home, the appraisal establishes the home’s market value by comparing it against recent sales of comparable homes. For example, three-bedroom ranches are compared against other three-bedroom ranches, usually within a mile or two of the home you’re buying. It can be a little further out if you’re in a rural area.

This valuation is to ensure that the amount of money requested is appropriate for the property you want to buy.  If the appraisal comes in lower than the agreed upon purchase price, you may not be able to borrow enough to buy the home.  When the appraisal comes in low, you have five alternatives.

8. You should get a home inspection

Unlike an appraisal, a home inspection isn’t required to get a mortgage, but you should absolutely get one.

A home inspection is where you as a buyer get the chance to tour a home with an inspector and find out what you need to look for in terms of problems with the house as well as any issues that may currently exist. If there are any deal breakers, you can walk away if you have an inspection contingency. You also may be able to have the seller fix issues or knock some money off the purchase price for you to make the fixes. It doesn’t always happen, but it’s possible.

9. There are ways to keep closing costs down

If you’re looking to reduce closing costs, there are multiple ways to do this. Here’s how:

10. You’ll need homeowners insurance

Mortgage investors require that you have homeowners insurance in order to protect their investment. If your house is hit by a tornado and needs major repairs, that affects the value of the home. If you fell on hard times and the lender had to sell that property, they need to make sure that it’s repaired to the level it was when you bought it.

You need to have coverage that will at least cover the value of the property repair. In certain areas, you may need special flood or earthquake coverage.

In addition to structural damage, homeowners insurance also typically covers damage to other structures on your property, personal property loss (up to a certain amount, and if you have any high-value items, you may need a rider for additional coverage) and liability in case someone hurts themselves on your property.

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About Chelsea Brennan

Chelsea Brennan is the founder of Smart Money Mamas, a personal finance blog that focuses on family finance, investing, and reducing money stress. Chelsea is an ex-hedge fund investor whose work has appeared in a wide array of publications, including Forbes, Business Insider, and more.

Read more by Chelsea Brennan

Our editorial policy

Haven Life is a customer-centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.

Our editorial policy

Haven Life is a customer centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.

Our content is created for educational purposes only. Haven Life does not endorse the companies, products, services or strategies discussed here, but we hope they can make your life a little less hard if they are a fit for your situation.

Haven Life is not authorized to give tax, legal or investment advice. This material is not intended to provide, and should not be relied on for tax, legal, or investment advice. Individuals are encouraged to seed advice from their own tax or legal counsel.

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Haven Term is a Term Life Insurance Policy (DTC and ICC17DTC in certain states, including NC) issued by Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111-0001 and offered exclusively through Haven Life Insurance Agency, LLC. In NY, Haven Term is DTC-NY 1017. In CA, Haven Term is DTC-CA 042017. Haven Term Simplified is a Simplified Issue Term Life Insurance Policy (ICC19PCM-SI 0819 in certain states, including NC) issued by the C.M. Life Insurance Company, Enfield, CT 06082. Policy and rider form numbers and features may vary by state and may not be available in all states. Our Agency license number in California is OK71922 and in Arkansas 100139527.

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