Updated: Mar 29, 2022
1. Get prequalified before going shopping:
Getting prequalified before starting your home search is very important. During a prequalification a lender will take a look at your credit as well as all of your income sources and assets. Upon doing this the lender will give you an estimate of how much they would lend you, as well as the type of loan you could qualify for. This is a very important step because it lets you know before you even begin the shopping process exactly what you can afford. This way you are not out there looking at homes that are outside of your budget without even realizing it and in result wasting your time (which we all know is precious).
2. Don't try to time the market:
It is nearly impossible to time the market. Even the best so called "experts" can't ever seem to get it right. No one ever really knows when the market is going to go up or down. It is easy to say when the market is very high that you think there will be a dip, or vice versa if it is very low you think it will rise, but predicting the exact timing of that is what's nearly impossible and can be very detrimental to your pockets. Say home prices are very high (like in today's market). Let's use an example of a $300,000 house. You might be sitting on the sidelines right now because you think there is going to be a dip and that house will fall to $275,000. You might be right that there is going to be a dip, but what if that dip comes 1-2 years from now? Meanwhile over those 1-2 years the value of that home kept rising and hit $350,000 before the dip came and brought it back down to $315,000. You were right that the market was going to dip, but you didn't know when, and because of that you ended up paying an extra $15,000 whereas if you wouldn't have tried to time the market and just bought earlier, you would now have all that money in equity. Thats a $30,000 difference right there that you lost out on.
Another reason why trying to time the market is not worth it is because home values always go up in the grand scheme of things. So if you are planning on keeping that home for at least 7-8 years, it will not matter if you timed the market perfect or not, the value of that property will still have likely gone up since the time you bought it.
3. Don't make any big purchases or do anything that could effect your credit:
Just because you have gotten prequalified does not mean that you have officially secured that loan. Getting prequalified is just the first step. The lender will do another check of your credit and everything once you officially go under contract on a house and are in the final stages of the process. This is the one that will officially secure you the loan. Opening up a new credit card or taking a loan out on another big purchase such as a car, can negatively impact your credit score and result in you not getting the loan you thought you were.
It would be wise to refrain from making any large purchases until after you have settled on your new home even if you are planning to pay for the item in cash. This is especially true if you are on a tighter budget. When you make an offer on a home you are going to have to put some money down as an earnest money deposit (EMD). Earnest money deposits are typically around 1% of the purchase price. For example, if you are purchasing a $200,000 house then you would typically put down around $2,000 for your EMD. EMD acts as a security deposit for the seller. They are going to be taking their home off the market and only working with you. If you default or don't hold up your end of the agreement, the seller will get to keep this money, but if you end up closing you will typically get this money back at settlement or you can use it towards the purchase price of the home.
Another reason to not make any big purchases until after you've settled on your new home is because you will likely have to pay closing costs. Closing costs can be a bit pricey as they typically range anywhere from 2-5% of the purchase price. So using the example from earlier, closing costs on a $200,000 home could range between $4,000-$10,000.
4. Make a list of your priorities:
It is not entirely common to get every single thing that you want in a home these days. Therefore it is important to be ready to negotiate if needed and make a list if things you want to prioritize in a home. For example, say you have 3 people living in your home and you want to make sure that everyone has their own bathroom. Or say you want to have a live-in basement because you plan on renting that part of your home out for some extra income on the side. Another very common one is having first floor living. This is common when you have elderly people living with you who cannot make it up and down flights of stairs everyday. Whatever it may be, it can be very helpful to list these things in order of importance to you just in case you cannot get everything.
5. Work with an agent:
Most homebuyers have the misconception that when they work with an agent they will have to come out of pocket to pay them. This however is not usually the case. The agent gets paid from the sale of the property itself. What this means is that the money the agent is getting is actually coming out of the sellers side. Example: When you buy a home for $200,000, you as the buyer are only paying that expense. The agent that you are working with, will get his/her commission out of that $200,000 (which is typically around 3%). Therefore it is the seller that is having to pay the agent, while the buyer is essentially getting the services of the agent for free.
So what all do buyer's agents help with?
- Finding a suitable home that meets all of your needs
- Assisting with all of the paperwork (there is a lot!!!)
- Talking and negotiating with the listing agent or seller
- Talking with the lender and title and making sure everything is situated
- Giving reccomendations for inspectors, title companies, contractors, lenders, etc.
- Teaching/explaining the market to you and giving you information that you might otherwise not have
- Acting as a fiduciary for you and looking out for you (who wouldn't want a licensed professional looking out for them?)
If you work with a buyer's agent you get all of this plus much more all for the low cost of NOTHING!!!