4 Steps When Deciding to Buy a House - Homebuying Series: Part 1
1. Determine Why You Want to Buy a House
Everyone has different reasons that they want to purchase a home. For us, we want to find a home that would be cheaper than the rent which would allow us to tackle our student loans and other debts more aggressively. We want autonomy over our home. I want to be able to paint the walls whatever color I want, hang pictures and decorations, and grow a garden in the backyard. While the home that we are renting is nice, we don’t have that flexibility (or a backyard to play with). We are both from suburban NJ and we are used to having large yards with plenty of space. We want to build equity.
One thing that should not drive your decision to buy a home is what your friends and coworkers are doing! I am 28 years old and the majority of my coworkers who are around my age and many of my friends own homes. While that did make me envious, I knew that we had to wait until it was right for us. I also personally wanted to be married to Grant before purchasing a home with him. Also, by moving around so much after graduation, we had not truly settled on a place to live. IT is important to buy a home when it makes sense based on your life circumstances – your job, your stability, your finances.
2. Get Educated
By the time we got around to going to the HUD-sponsored First Time Homebuyers Workshop (which was 6 hours in length), we had discovered that we knew about 90% of the content that the educators covered. Which was a relief! All of the countless seminars and online research had paid off. It made me feel more confident about the home buying process and that we were truly ready to take that next step in our lives.
Attend as many free seminars and workshops as you can. I found many of the events we attended on Facebook. There is also an organization in the city called Live Baltimore, which sponsors workshops on various topics (financial incentives, home renovation loans, applying for a mortgage, etc.). We signed up for a lot of their events as well. Workshops such as these will often have mortgage lenders and real estate agents presenting, which is very helpful as you can hear firsthand experience as well as begin to build your homebuying team.
3.Calculate How Much Home You Can Afford
There are many different calculators out there that you can utilize between Nerd Wallet, Bankrate, Zillow, and many others. A mortgage company website will often have calculators that you can use as well, but you must have a good handle on your monthly expenses so that you can get an accurate calculation.
It’s also important to pay close attention to the mortgage estimates you get online through websites like Zillow and Trulia. To get an accurate sense of the housing cost, you should have a good idea of mortgage interest rates so that you can use a realistic number. You can look up property tax information and plug that number in – I have found that websites like Zillow and Trulia often don’t have accurate numbers, which can throw off their estimates for the mortgage.
We attended a workshop and found out how much a mortgage lender would pre-qualify us for. It was approximately $415K, which we would never attempt to get close to at this stage in our lives. We played around with numbers and found out what house cost would give us a mortgage that was significantly less than our monthly rent of $1,700. We found that that number was around $200-$230K. Now compare that with $415K. However, this also depends on your values as well as if you plan to live in the house long term. We don’t know what the future will hold for us, so the house we purchase soon will likely not be ours forever home. So, we are willing to live in a modestly priced house to save several hundred dollars per month. This will depend on where in the country you live in. In some areas, $230K could give you a large five-bedroom home and in other areas, you would be unable to buy a house for any less than $500K.
4.Figure Out Where You Want to Live
Now that you have a good idea of how much you can afford and how much you would like to spend so that you have not maxed out your budget, it’s time to figure out where you want to live. This is where renting for a few years in the city has been beneficial because we know where we want to live and where we do not. Baltimore has approximately 250 neighborhoods, all with distinct characteristics. Row homes are very common in Baltimore, but we want a single-family home. So that automatically will limit our search. We attended a neighborhood tour back in June where we were able to go to several open houses, walk the area, and go into local businesses. By having an idea of the pricing range, you would like to stay between, it will help you determine if where you want to live is realistic. If not, are there things you can do to make that dream reality?