Buying a home can seem especially daunting if you've never done it before.
A house is not just the biggest single purchase most people will ever make, it's generally many times more expensive than the next closest thing. Make a mistake, and you could end up facing serious money problems, a miserable living situation, or any number of other predicaments.
The good news is that you don't have to worry about making mistakes, because I've made them all. Over the past 20 years, dating back to before we got married, my wife and I have purchased eight homes. We've owned houses, condos, a co-op, and a manufactured home that we just bought as a rental property.
Over the course of those deals, we've made some major blunders and learned some things that have made each successive purchase easier. Our advice can't take all the fear out of what may be your only six-figure purchase, but it can allay those fears somewhat and help you avoid some of the mistakes we made.
Don't spend too much
While your mortgage company may stop you from spending way too much, it may not stop you from stretching your budget further than you should. When deciding how much to spend on a home, there are two main considerations. The first is how much you're willing to sacrifice in order to have the home you want. The second is whether you'll be able to pay the mortgage if your employment and/or income changes.
Be conservative in both cases. You don't want to eat ramen noodles for a decade, even if it seems romantic at first. You also don't want to risk losing your house if you lose your job or take a pay cut.
Don't spend too little
When my wife and I bought our first few houses, we ended up moving within a year because we were too conservative. We thought about price more than we did about being happy with the home. Once we realized how much room we had in our budget for bigger mortgage payments, we ended up looking for something else.
And of course, moving every year has its own costs. Simply moving your stuff from place to place is expensive, and there are all sorts of fees and taxes involved with a move, as well as real estate commissions when you sell.
Flush the toilets and run the water
While you'll eventually have a home inspection, there are ways of looking for problems when you first see a home. An obvious one is to simply run the faucets and flush the toilets to see if they work as they should. Had I done that when we bought our first house, we may have noticed a poorly flushing toilet that the home inspector missed. As it turned out, there were vines growing into our pipes -- that was a $600 fix up front. We then found out the pipes were made of laminated cardboard and at risk of collapsing, which would have required us to dig up the living room. The outdated and compromised plumbing was the main reason we moved out.
Look at the basement
Much like flushing the toilets can tell you a lot about the plumbing, looking at basement walls can teach you a lot about the home's structural integrity and flood resistance. Water stains suggest flooding, but there are also more subtle clues. If the current homeowner doesn't have anything on the floor itself -- for example, if appliances are sitting on blocks and cardboard boxes are kept high off the ground -- then that's a potential red flag.
Work with a realtor you trust
In both the places my wife and I have lived in the past decade, we have been lucky to find realtors we trust. Our first realtor helped us navigate buying our first house (after we had owned a co-op previously). He listened to what we wanted and what our capabilities were. Because he took the time to listen, he steered us away from homes that needed work or ones that wouldn't be good for our then-future child.
It's OK to meet with more than one realtor to find someone you like. You're not obligated to work long-term with the first person who shows you a home.
Listen to your realtor
A licensed realtor knows the market. If he or she tells you that a low-ball offer won't be accepted, odds are he or she is right. The same is true if your realtor warns you about a property or a section of town. Ours saved us from some deals that seemed great to us but would have been disastrous in the long term.
Be prepared to get a mortgage
The hardest part of buying, aside from finding the house you want, is getting a mortgage. You should start preparing to get one long before you begin looking at houses. That means getting your finances in order, having your two most recent pay stubs ready, and digging up your tax forms and W-2s from the past two years. You will also need to share bank statements from at least two months.
Get your credit in check
Aside from income, your credit score will be the most scrutinized piece of data mortgage companies look at. As soon as you even think you may want to buy a house, learn your credit score by going someplace like MyFICO.com and seeing your reports and scores from all three credit bureaus. Check for mistakes in your report and look for areas where you can improve. It's possible to raise your credit score by doing a number of different things, but an obvious one is making sure you pay off your credit card balances.
Join a credit union
When you apply for a mortgage, you'll want to pursue multiple options to see where you can get the best offer. In some cases, the best deal will be a local credit union. Some credit unions have more discretion about loaning money than traditional banks.
Trust the appraisal
Before a mortgage lender will actually write a check, it will order an appraisal, in which a professional appraiser determines the value of the property you plan to buy. The value is not what you're willing to pay, but what comparable homes have sold for.
If the appraisal comes in much lower than what you're paying, the mortgage company will want you to come up with more cash in order for your down payment to give you whatever percentage of equity you have agreed on. A low appraisal is also a warning sign that you, and your realtor, misjudged the market. That means you may be paying too much, because no mortgage company will accept that the house is worth what you agreed to pay.
Try to avoid PMI
Private mortgage insurance, more commonly known as PMI, is insurance on your mortgage that only protects the lender. It's an added fee that in no way benefits you, and it's generally mandatory if you have less than 20% equity in the home. Paying 20% down may not be easy, but if you can manage it, it's worth it just to avoid PMI.
Always have a home inspection
Sometimes sellers will offer a home "as is," meaning they won't make any repairs or adjust the price if a home inspection finds anything amiss. In many cases, that means the eager homebuyers decide to skip the inspection altogether.
That's a terrible idea. Even when buying an "as is" property, make sure you have the right to break the deal if an inspection -- which you should insist on -- turns up a problem you don't want to deal with. That could cause the seller to reject your offer, but if that's the case, you're dodging a bullet. It's important to know what you're buying, and an inspection is the only way to do that.
It never hurts to ask for more
When you make an offer on a house, it's not crazy to ask the owner to include an unlisted item in the sale. Maybe you love a chandelier or a kitchen table. The seller could refuse the request, but they could also agree to it in order to close the deal.
Remember that kids get older
When my son was very young, we lived in a three-story house with the laundry facilities in the basement. It was a hard house to make baby-safe, and we decided to move when he began walking.
In looking at houses to move to, we only considered ranches with basements that had doors we could lock from the outside. The idea that our child would ever handle stairs seemed impossible.
A few years later, of course, that seemed ridiculous. We could have saved money on that purchase and bought a different model in the same condo development, had we been open to stairs. It sounds silly, but as first-time parents we made a decision in the moment that we suffered for financially for years to come.
Think about resale
After my grandfather died, my grandmother turned her three-bedroom house into what was essentially a one-bedroom. She turned one room into a makeup room and another into a sort of office making for a massive master suite. It worked for her, but when it was time to sell the house, the pool of buyers who wanted a large, basically one-bedroom house was fairly small.
It may be tempting to buy a unique house that has quirks you really like. But if other buyers won't like those features and you're not entirely sure you will never sell the house, then buying an offbeat house may be a bad idea, as it makes resale much harder.
Do a final walk-through
Even if your home inspection was only a few days before closing, you should still do a final walk-through before closing the deal. Look for any damage done while the seller moved out, or anything that contractually should have been left behind but was in fact removed. If you don't check these things before closing, it becomes much harder to remedy the situation after the seller has your money.