Are you getting ready to buy a home?
Your first (or even fifth) house purchase is a huge decision. It seems like there are a million things to know before buying a house.
From figuring out how much you can afford to hire the right home inspector, there is a lot to keep in mind.
In order to help you with your home-buying checklist, I interviewed 21 different experts on the top thing they wish they knew before buying their first house. Their answers uncovered a few surprising things even I hadn’t considered!
Read on for the top 21 tips for new home buyers.
1. Hire a Home Inspector
Ryan Luke from Arrest Your Debt says:
A good home inspection will cost you several hundred dollars. When you are already spending so much money, it may be difficult to write another check for a professional to inspect your home.
However, not inspecting the home professionally can have costly consequences. Home inspectors come into the property and take a deep look at everything — the landscaping, wiring, appliances — plumbing, and the roof — before you sign the contract.
Home inspectors can find these problems, and you can either have the seller fix the problems or pull out before you’re stuck with a problem property.
2. Keep the Hidden Costs in Mind
Melanie Allen from Partners in Fire says to think about the hidden costs:
The cost of a home is far more than the purchase price. I wish I would have taken into account how expensive everything else is when budgeting for my first home.
I didn’t think about how much homeowners insurance would add to my monthly bills, or that I would have to furnish my first home from scratch. Remember to consider things like moving expenses, furnishings, closing costs, insurance, taxes, HOAs, and any other hidden expenses of buying a home when first creating your budget.
This will prevent you from getting a nasty surprise that you can’t afford when you should be excited about your new home.
3. Renting Back Isn’t Always at Market Rate
Monica Fish from Planner At Heart warns about lease-back agreements:
In a competitive real estate market, buyers are doing all they can to become “The Chosen One,” including allowing the sellers to stay in the property and rent it back from the buyer for a set amount of time after closing. While you want to make your offer as competitive as possible, keep in mind it’s customary to charge a daily pro-rated portion of your PITI payment (Principal, Interest, Taxes, and Insurance), not the market rate.
So if your PITI is unusually low due to a large down payment or they’ll be renting from you for months, you might want to consider a separate rental agreement based on current rental rates in your neighborhood. We certainly wish we did.
4. Be a Stay at Home Landlord
Brian Thorp from WealthTender wished he had thought about his purchase as an additional income stream:
Mortgage payments can feel intimidating, but especially if you’re buying a house while living alone, it’s easy to offset your mortgage (or even make money each month) by renting a room or your entire house on Airbnb during major events.
I wish I had subscribed to a few real estate blogs before buying my first house as I would have discovered ideas like this one sooner to save money or even pay off my mortgage early.
5. Home Improvement is Expensive
Jeff Cooper from Have Your Dollars Make Sense learned some lessons about home improvement costs:
Many people will buy a fixer-upper when buying a home to save on the initial cost thinking they can simply put money into the home when they can. It is a solid strategy, but many fail to realize how much home improvement can be. Most of us want to fix everything quickly, but fail to realize how much even the smallest of updates can be.
When buying a fixer-upper make sure there isn’t too much to fix!
6. Think About the Future
Derek Carlson from The Money Family suggests thinking about your future plans before buying a home:
Consider your future plans and if this home fits in with them, or if you’re willing to move in 5 – 10 years. If you’re planning on starting a family or changing jobs, will this home fit into those plans? Or will it require you to relocate to another part of town with a different commute, different school district, etc.?
Selling a house and buying a new one is expensive. By planning now for a house you can grow into you can save a significant amount of money down the road.
7. Aggregate Your Paperwork
Sanjana Vig from The Female Professional says:
There are many things to consider when buying a house. While I did all my calculations before taking the leap, I underestimated the amount of paperwork that would be required for the bank.
For example, I had, over time, transferred my down payment into my main checking account. For each transaction, I had to explain where the money came from. In retrospect, I wish I had done the transfers earlier, or in one lump sum so that I could have avoided the headache of phone calls, paperwork, and explanations.
Do yourself a favor and tee up all of your accounts so that you can skip the questions. You’ll save yourself a lot of time and stress!
8. Ask About Warranties
Jessica Bishop from The Budget Savvy Bride wishes she had collected more information on appliance warranties:
Before you buy a home, you’ll want to learn about the history of all the major appliances and if there are any existing warranties. From kitchen items like your refrigerator, oven, and dishwasher, to laundry machines, or even your HVAC unit or water heater, you’ll want to know what’s still within a warranty period and what’s not.
It’s also helpful to know the age of your water heater or air conditioning unit in particular because these costly items generally have to be replaced at regular intervals. If you’re coming close to the 10-year mark on a water heater, you might just find yourself hit with a major emergency plumbing expense right after you move in, so it’s good to be aware of any potential risks ahead of time.
9. Know How Much You Can Offer
Riley Adams from The Young and the Invested offered this advice:
My wife and I recently purchased our first home together, and we, fortunately, decided to contact a lender out of an abundance of caution to understand what our budget would be.
Initially, we thought a larger home with a higher price tag was within reach, however, after learning about the rules for measuring your debt to income ratio, not all of our income would count in that equation. Banks, who tended to be more conservative during the pandemic, only counted certain types of income, making variable income not receive credit in that metric. As a result, we had to lower the range we could afford on a home.
Thankfully, we still found our dream forever home and it didn’t hold us back too much. If anything, it added discipline to our ability to bid. If we had more firepower, we may have opted to use it. We knew buying a house would be one of the best assets to invest in for our part of the country and wanted to find the right one for us to settle down and see appreciation over time.
10. Your House Is Not a Part of Your Retirement Fund
Jesse Cramer from the blog The Best Interest wishes he had considered the impact of his home on his retirement plans:
I was excited to buy my first home because I saw it as a vehicle to build my wealth. And that’s largely true. Real estate is a significant stepping stone in building the average American’s net worth.
But wealth is not the equivalent to your retirement savings, and that’s where I messed up. You cannot both live in your house and sell it as part of your retirement nest egg. Duh! I know, I know, but it’s a mistake I made.
The truth is that you should only count real estate as part of your net worth if it’s not your primary home or if you plan on downsizing prior to retirement. Otherwise, you’re selling yourself a false dream!
11. Consider Furniture in Your Closing Costs
Kevin from Just Start Investing gave the following advice:
Furnishing a home can cost a lot of money, and oftentimes that is an overlooked expense when buying a house. It’s important to consider your furniture budget when looking at your overall housing budget, keeping in mind are needs vs wants.
Remember, you don’t have to fill your entire house right away. Be realistic with your budget and stay within your means.
12. Take Advantage of First-Time Home-buyer Loan Programs
Jonathan from Parent Portfolio added:
Some loan programs allow first-time homebuyers to make a down payment as low as 3% to 5% of the purchase price. Instead of buying a single-family home, consider purchasing a duplex or another multi-unit.
Homeowners can house hack by living in one unit and rent out the other unit(s) to tenants. The rental income can cover the mortgage payment and allow a homeowner to live mortgage-free.
Usually, real estate investors have to pay a 20% to 25% down payment for non-owner-occupied properties. Therefore, a 3% to 5% down payment is a great deal with the benefits of living for free and making extra income.
13. Purchase Price Should be Based on Monthly Affordability
Tawnya from Money Saved is Money Earned advises that the monthly payment is more important than the purchase price:
If you are financing your home, which most are, there are several factors that can drastically affect your monthly payment.
These factors include property taxes, mortgage insurance, homeowners associations fees, and the interest rate you’re able to secure. While your interest rate will likely be the same for each house you consider, the other factors can swing your monthly payment several hundred dollars one way or the other.
Instead of setting a budget at the purchase price of a home, you should instead set a monthly budget when determining the affordability of a house. If you’re pre-approved or working closely with a lender, have them give you a rough estimate of the monthly payment for each home you’re considering to ensure your monthly budget isn’t overstretched.
When I was looking for a home there were several that were within my overall purchase price range that ended up being outside my monthly affordability due to property taxes or one of the other factors discussed.
14. Hidden Fees Add Up
Adam from Wallet Squirrel says to pay attention to the hidden fees:
There are some hidden fees on top of the property taxes and insurance we didn’t know about when we bought our first home.
One example is the sewage and storm-water fee. This isn’t huge because it is only about $250 a year but it is another check to write. I wish I had known to check with the county and city for fees like that.
I would recommend talking to your real estate agent about any county or city fees that might sneak up on you. They should have the resources to help you research.
15. Remember to Budget for Legal Advice
Tim Thomas offers some advice on understanding legal fees in the buying process:
Here in the UK, when it comes to legal advice concerning buying property, the quality of the service you receive and the fees they charge can vary significantly.
In hindsight, we were lucky in finding someone for our first purchase who we used for future purchases, but he wasn’t available on our last house buy. The costs for this last purchase escalated significantly from the initial quote, and it was for things that our preferred lawyer wouldn’t have charged us for.
So get a clear handle on the legal fees you’ll be charged and what is and isn’t included in that price.
16. How to Budget for Maintenance
Josh Hastings from Money Life Wax emphasizes the importance of budgeting for regular maintenance:
Truth be told, when I bought my first home I had no clue that within a few years my A/C unit, washing machine, stove, and dishwasher would all need replacing.
I wish I had budgeted for all of these big-ticket items. After talking to my financial planner, his recommendation was to save 1% of my home value per year for home improvement and maintenance costs. For example, a $300,000 house means you want to set aside $3,000 a year to be safe.
This will help for even bigger projects such as siding, plumbing, or windows.
17. Get Your Finances in Order Before You Buy
Marjolein from Radical FIRE recommends doing a financial check-up before you start looking for a house:
Before you buy your home, you want to make sure that your finances are in order. You can do that by making sure that you’ve paid off your high-interest debts, and you want to have an emergency fund, to name a few examples. Getting your finances in order looks different for everyone, so think about what it means for you and start to take action.
I was in a situation where I wanted to buy a house, and I was in the process of talking to the bank. That’s when I found out that I couldn’t afford the home because of my debt. There are regulations in place in the Netherlands, where your debt influences the amount of mortgage you can get. It didn’t matter that I had a high average net worth in the Netherlands.
If I knew that before, I would’ve started by paying off my debt, and I wouldn’t have wasted my time. Get your finances in order and you’ll be able to buy a home with peace of mind.
18. The Value of Adding Value
Tyler Weaver of Relentless Finances says you should consider ways to add value to get the most bang for your buck:
When buying my first house, I was looking for something of great quality that was ready to go.
As I learned more about real estate, and myself, I realized I prefer to buy a house that needs a little work. On my second house, I took on a much more extensive renovation and was able to capture a lot more equity.
Building equity through renovations is a core principle to the BRRR method which I now do on rental properties.
19. Don’t Overlook Your Wish List
Amanda Kay from My Life, I Guess reminds you not to compromise on your wish list just because of a hot market:
Although I am still a renter, I kind of hate where I live. Not being able to move somewhere better used to really bother me, but as my husband and I are getting closer to buying our first home, I see it as more of a blessing.
I know exactly what I would change about our current home, and my wish list is ready for when we start looking. More importantly, though, is the list of deal-breakers that I have been able to pinpoint and will avoid, so I don’t end up stuck owning a home that I don’t want to live in.
20. Shop Around for Insurance
Robyn from A Dime Saved says:
Insurance costs and needs vary wildly from state to state and area to area. Ask neighbors of the house you want to buy about approximate insurance costs and consult with an insurance agent to find out if you are in a listed flood or zone.
Even if you are not required by the bank holding the mortgage to purchase special supplemental insurance (fire, flood, hurricane, earthquake, etc) you may want to look into purchasing them for your own peace of mind.
Make sure to have enough money in your emergency funds to cover your insurance deductible so you are covered in case of an emergency.
21. Be Aware of Your Own Biases
Linda from The Cents of Money says self-awareness is key in the buying process:
The most reasonable people may become irrational when buying their first home. Biases like the confirmation bias may cause you to be swayed by an eager real estate agent doing their job. As they highlight the best features during the home search, you may overlook negative factors that are more crucial to you, like the tiny kitchen, cracked walls, or low ceilings.
Make sure to revisit the house at different times and honestly appraise what may later become significant problems.
There are a lot of things to know before buying a house. By being aware of these tips, I hope it helps you become more prepared for your own home purchase.
Educating yourself before jumping into a big purchase will help you make a better decision, and be more confident in the outcome.
Thank you for reading! What are your best tips for first-time homebuyers? Let me know in the comments!
This article originally appeared on Wealthy Nickel and has been republished with permission.
Andrew is the founder of Wealthy Nickel where he writes about all things personal finance. He has a passion for helping people pursue financial freedom through saving money, making money, and building wealth. Andrew documents his family’s journey to financial independence through side hustles while raising 2 kids on a single income