If you’re looking to find your first home in a city or neighborhood with a low inventory of affordable starter homes, how do you decide what you want and what you need, and buy that home for a price you can afford? Check out these tips to find a home you’ll love – for now.
1 – Organize your wants vs. needs
Before you start looking at homes, make a list of needs and wants. If you are single or a couple, you might want a larger home to grow into, but a smaller home might meet your needs for the next few years.
When you’ve created your lists, use the filters on one of the online real estate websites to see if what you want is affordable in your preferred neighborhood. If a 3 bedroom/2 bathroom home in a hip downtown neighborhood is what you want but can’t afford, decide if a 2/1 in the same neighborhood will meet your needs for the next few years.
2 – Don’t bust your budget
Buy a home you can afford. Having a less expensive mortgage will enable you to pay off student loans, car loans, take a vacation each year, and save for your next financial goals.
Get pre-qualified or pre-approved for a home loan before you start house hunting. Your mortgage lender will review your finances and let you know if you need a higher credit score or down payment. They’ll also provide a realistic budget, so you can confidently place an offer when you find a home.
3 – Consider old vs. new
Do you see yourself in a beautiful older home or a more modern, chic abode? An older home may require more maintenance, but new homes are often built in neighborhoods further out of town. The asking price for a newer home in the same neighborhood will likely be higher than for older homes of the same size.
4 – Rushing in vs. dragging your feet
It may be necessary to make an offer fast when you find a home you like. Ideally, you can take a few days to revisit the home at night and at different times of day to see if the neighborhood is safe, has more traffic on the weekday vs. weekend, etc.
House hunting can be time-consuming and losing out because someone made an offer can be heartbreaking. Buying a home is a high-cost investment, but you must have the confidence that you will be prepared to place an offer when you find a home that meets your needs.
5 – Real estate agent vs. buying on your own
The prevalence of real estate websites can make it seem easy to find a home. A real estate agent has “fiduciary” responsibility to their clients, so they are legally obligated to put their clients’ best interests first. They will only get paid – by the seller’s commission – when you buy a home. When it comes time to make an offer, understanding purchase agreements and all of the other associated documents, they’re usually worth their weight in gold.
If you decide to buy on your own, consider hiring a broker for a smaller one-time fee to simply review your contracts before signing.
6 – Offering too much vs. low ball bid
If there are several offers on the home you love, it’s easy to get sucked into a bidding war and end up paying more than the house will appraise at and your mortgage lender will finance.
If the house has been on the market for a while, is outdated, or requires repairs, there is often an opportunity to make an offer below the asking price. Be prepared for the seller to reject your offer or make a counteroffer; use this opportunity to negotiate.
A real estate agent can look at comparable sales to ensure your offer is reasonable for both the house and the location.
7 – Have an exit strategy
Starter homes aren’t meant to be your forever home. You’ll probably make a few compromises on size or location to purchase a home that meets your current needs. Before you make an offer on any home, you need to think about its resale value or rental potential. A home in a good neighborhood, school district, or near transportation has good resale value. Keeping the home maintained while you live there will help you to get top dollar when it’s time for your next purchase.
As a first-time homebuyer, the home you end up purchasing probably won’t be your dream, forever home. And that’s OK! If you lose a home in a bidding war, or it takes longer than expected to find a home within your budget, don’t lose faith. Discuss your wish list and needs list with your real estate agent. He/she can help you decide if your expectations are realistic or suggest other neighborhoods to help you buy a home that meets your current needs.