11 Things Everyone Starting The Home-Buying Process Needs To Know
- Avoid making big financial changes right before buying a home
- Take the time to get to know the neighborhood
- Make a point to learn property lines
- Schools matter — even if you don’t have kids
- Buying a foreclosure probably isn’t as risky as you think (disagree!)
- Make sure you understand all the purchase costs
- You don’t always need a big down payment
- You won’t regret a home inspection
- Keep your monthly payment in mind
- Be emotionally prepared to negotiate
- Don’t lose sight of the big picture
1. Avoid making big financial changes right before buying a home
Janice: This is big because you get so excited about buying a home that you wanna go buy furniture. You wanna go buy something else.
Janice: And it’s important not to do that right before, at least the minimum the first month, because you don’t want any credit fluctuations at all.
Anthony: There’s also other … If you change your job during the closing process, that can mess everything up because the bank might need a letter from your employer to prove your W-2s or … What’s another example? Financial changes. Oh right, if you start moving money around. Like let’s say, “Oh cool. I currently have my money with Chase, but I just found out Bank of America is giving a better rate. Let me move all my money.” If you have all these statements with wildly fluctuating balances, that could also mess up your underwriting process.
Janice: Correct. It’s important not to do that. Leave everything alone just as they have it, and wait til after.
2. Take the time to get to know the neighborhood
Anthony: I think you and I can both offer pretty unique perspectives, ’cause I live in Manhattan, and you are in a more suburban … Would you consider your area suburban or rural?
Janice: Definitely. Definitely suburban.
Anthony: Okay. In the City, I’ll give the City take. It’s pretty unique because the neighborhood can change pretty drastically within one or two blocks, meaning there can be some pretty pish posh nice neighborhoods or buildings and whatever in one, like on 95th Street. I’m just making this up. This is not … I’m not saying anything about 95th Street. But then you go down to 93rd Street, and then it’s a little sketchy. You would think two blocks, how can that be. But that’s just kinda how it is ’cause everything’s compressed in the City.
Anthony: The reason this is important is because if your subway, the commute that you’re gonna take every day, passes through some of those less desirable neighborhoods or you walk to the grocery or to the bank or whatever, you need to scope those out to make sure you’re comfortable with your day-to-day routine.
Janice: That’s very important. And in my area, it’s suburban, so it’s a little bit different. You have these big developments, but although it’s a big development, there’s so much more to it. For example, mine in particular, we have an active train. There’s 50 to 60 trains that go through our development every day. If you’re not here at the right time looking at the house, you’re not gonna know that. You’re not gonna know how it sounds from inside the house.
Janice: I don’t hear it any more, but that’s something that’s pretty important to know in the neighborhood ’cause most of the times you’ll see train tracks, and nobody uses them anymore, but this one sure does.
Janice: Another good way to do it is Facebook groups. Most developments now at least in my area where they’re suburban, they have Facebook groups for the particular developments. Those are great ’cause you get on there, they talk about everything. And that’s fantastic. They’ll talk about the crime, that says an article about more renters than homeowners. There are some developments that are mostly renters even though they look like single family homes. That’s interesting to keep in mind, especially for down the road if you try to sell again.
Anthony: Just one more point on this. In the City, I might say this … I might narrow this down to the building versus the neighborhood. So every building, condo or coop, apartment that you live in his its kind of its own vibe. It might be more retirees who like it quiet or it might be really, really jampacked with kids or young kids who are kind of crying all the time. So you need to get a sense of the vibe of the building because it can be close quarters.
Janice: That’s a very good point. And whereas in my area in suburban, outside of Allentown, we are getting everyone from all the big cities coming in. So ours I find is just a big, fun melting pot. You have new families, you have older, you have retirees, so it’s very interesting. It’s not a building, it’s a community here in this area.
3. Make a point to learn property lines
Janice: This is really big, especially inthe suburban, the rural area. Where does your line end? Where does theirs begin? Are you gonna wanna put up a fence? Parking is a big deal. You can’t park. Driveway … When you’re talking about shoveling snow. It’s so important to know where your property ends and the next person begins. Get a map. Get the original deed, especially if it’s a development. The developers have all that information. Go way back and get that information ’cause it’s really important.
Anthony: That’s pretty much a non-issue in Manhattan. But in some parts of … Brooklyn, Staten Island, even the Bronx and Queens, this can be an issue. So yes, everything you said.
Janice: I have seen and heard many neighbor fights over easements. Especially when it … legal … You see lots of lawsuits for easements. So it’s really important to know. Just look into it.
4. Schools matter — even if you don’t have kids
Anthony: So anyone who might be new to the home buying process, pretty much in most parts of the United States the public school that you’re able to go to is tied to where you live. It’s sort of like districts or zones, and also in most parts of the United States, schools are funded by the property taxes paid by the zone or district residents. That has a couple of important ramifications. If you wanna go to a really, really great school and you’ll have to live in that area, and you’ll probably have higher property taxes than in other areas. What can you add, Janice?
Janice: That’s absolutely correct. And when it says, even if you don’t have kids, it’s important to think of down the road should you ever wanna sell again to a family. Do you live in a good school district? Is it a poor school district as in poor academic numbers? That will really affect whether that family is going to consider your home or not. But you’re correct in the property taxes. Some school districts, especially here, you move one street over, your property taxes are gonna be significantly higher for the same ranked school. If that makes sense. So you’re gonna go to the same school, but your property taxes will be higher. So it’s just so much to keep in mind when looking. And all that information is available online.
Anthony: Yeah. There’s a couple of great resources. I think greatschools.org is one. I’ll have to look these up and throw them onto the notes, but there’s a couple of sites. But also, I know a lot of folks say even if you don’t have kids, you wanna buy in a good school zone because good school zones will help with the property value no matter what. I wanna play Devil Advocate on that for a second because, I mean, schools change too. Right? A good school’s not gonna be a good school forever.
Anthony: And a bad school might become a good school later.
Anthony: It’s hard. It’s hard to speculate. It’s like you’re speculating on a school.
Janice: Correct. Correct. But you can get a general sense even going back to what I was saying with getting to know the neighborhood. And your Facebook groups. You’ll hear people talk about the schools all the time. They love the school. They love the teacher. They love how their student’s doing. You know you get a good sense of community and environment when you look at the school as a whole. Is everyone happy really? And are the test scores, are they good?
5. Buying a foreclosure probably isn’t as risky as you think (disagree!)
Anthony: I’m gonna disagree with this one. I’ve done foreclosures, both … As you know, we do estates. So as an executor, I have sold foreclosures and short sales, and I’ve helped clients also purchase them as part of their planning or wealth building. It’s not easy. I think it is … Well, I guess they’re saying it’s not risky, but I don’t think in this article they’re taking into account time risk. These deals just fall apart, and you’ve wasted six months where you could have been applying that time to purchasing a more likely property to close. So in that regard, I would glaze over this one. I don’t believe in this one. Do you have any thoughts?
Janice: I don’t. I have not ever tried to purchase a foreclosed property, but you hear the stories. I’ve never heard anything that it went smoothly. But that’s not to say that doesn’t happen. It’s just not what I’ve heard.
Anthony: I’m not speaking in absolutes. I’m sure easy deals have happened. I’m just talking about the odds.
6. Make sure you understand all the purchase costs
Janice: So when you get your information on your mortgage, you have a number. And that’s fantastic, but you also have to think in mind of your down payment is not just what you’re going to need to make that number. You have to cover the home inspection, the closing costs, there could be much more than that initial money down that they talk about when you get your mortgage information. So you have to plan ahead. If it’s X amount of dollars, you should add more on top of that to be prepared. Better to have too much than not enough.
Anthony: The article mentions that you might be required to have a certain amount left over at the end. That’s absolutely right.
Anthony: You cannot zero out and have zero in all your accounts at the end of the day after you buy your house. They wanna see usually … I mean, I don’t know about where you’re at, but in the City, the buildings themselves, not even the lenders … The buildings wanna see probably about a year’s worth of maintenance in your bank so that they know that you won’t immediately go into default on … I guess you would call it Homeowner’s Association, but maintenance for the condo.
Janice: Correct. You do not wanna end up paying for everything, you get into your nice wonderful new house, and then what do you do? You have nothing. You’re starting from scratch with your monthly bills and like you said, paying for the property and the maintenance. So it’s important to over prepare instead of under prepare.
7. You don’t always need a big down payment
Anthony: The article’s saying that conventional wisdom is that you need 20% down, but no, you can actually buy a house for as low as five or three percent down. I’m gonna disagree with this just because I actually agree with the conventional wisdom in this case. That the 20% down payment is not just about qualifying for a conforming loan, but it’s also about making sure that your monthly payments are manageable to avoid things like PMI, which is mortgage insurance. I don’t know, I feel like anything above that is being a little over leveraged. But that’s just kinda my two cents. What are your thoughts?
Janice: I agree, especially when you’re talking about what we just said. The 20% down payment. You have to look at your monthly numbers and talk to somebody about it. If putting five percent down puts you in a bind every month, that isn’t … It’s not a good idea. So you’re gonna wanna put that 20% down if it makes your monthly payment more management once you take everything into account, which we’ll talk about shortly.
8. You won’t regret a home inspection
Janice: This is really big where we live. Again, we have some older houses, some newer houses. It is so important. It says you won’t regret home inspection. 100% true. Very rarely have I seen that they don’t do a home inspection because when you’re walking through you’re excited, you’re like, “Wow, I’m gonna live here,” but you’re not looking at the electrical, the plumbing, the roof, all the little things that could become a problem from the minute you walk in til 10 years later. It’s just so important.
Anthony: So the funny thing is in Manhattan when you’re buying into a condo or a coop apartment building, there’s pretty much not much going on with physical inspections. There’s a little bit with HVAC units and windows, but what you’re really looking at is the building’s financials. Because a poorly run building both from the wear and tear perspective, but more importantly if it’s run poorly financially, that could really put a hammer on the quality of your property investment. That’s really-
Anthony: What people look into a lot more. There’s a whole due diligence period looking at the books of the building.
Janice: I find it fascinating that it’s so different when you purchase in a city versus outside of the city.
9. Keep your monthly payment in mind
Anthony: Janice, you talked about this. This is huge. I mean, people seem to … A lot of folks approach the home buying process with, oh my budget is, I’m just gonna pull a number out of thin air. My budget is $500,000. My budget is $300,000. My budget is a million dollars. But I think the better way to approach it is my budget is $3,000 per month. And different types of properties, different priced properties can fit into that depending on the property tax, the Homeowner’s Associations, the condo fees, and it really should be, what can I afford per month because the purchase price is just one variable.
Janice: Absolutely. I’d like to elaborate on this one a little bit ’cause I find it to be so important. So you have a monthly payment. You think it’ll be, like you said, $3,000. But you have to keep in mind the taxes, the insurance, etc., the important parts … It’s not just $3,000. There’s other things on top of it. I have found, and this is personal … It doesn’t work for everybody … We opened an account that was strictly for our monthly payment. We knew how much had to go in there every month to cover the mortgage, the insurance, the taxes and everything. And we figured out, based on how much we make a week, how much we had to put per week into that account so we know every month that it is covered. And why is that important? Because you miss one month of your mortgage, that’s detrimental to your credit.
Anthony: Bye, bye credit.
Janice: Right. And when you’re thinking $3,000 a month is what I have to save up and you have everything all in one big pot, you look at this pot and go, “Wow, I have $2,900. I’ll go buy a grill.” Not thinking that in two days your mortgage is due. It’s $3,000 so how are you gonna come up with the other $200? So that’s just something that really just worked for us, but it was just great. You never have to think about, oh my mortgage and everything be paid.
Anthony: That’s cool. So your system is to just have an account where you’re always sure that that balance is met-
Anthony: To cover. That’s interesting. Cool.
Janice: Absolutely. But we knew when we purchased the house, how much we could afford. And we stayed within that so we weren’t ever stretched. So it’s just important to make sure that your monthly payment is what you can afford and that you’re actually being able to pay it each month.
10. Be emotionally prepared to negotiate
Anthony: I think most people find discomfort in negotiating, so this is kind of a tough piece of advice. Most people find it hard to negotiate their salary. Most people find it hard to negotiate even a car purchase, and that’s why the other side usually gets a better side of the deal from me in most cases.
Janice: I agree. I am not a negotiator, and I will be the first to admit that. It’s hard.
Anthony: I don’t think that you can just kind of casually say, “Hey, do a good job of negotiating.” I think there’s a lot of psychology and prep that a lot of folks need to do to mentally prepare themselves for this and in other areas of their lives. So I think it might be a little flippant to just say, “Hey, do a good job of negotiating.”
Janice: It’s hard. It’s very hard. Like I said, the first line negotiating is very difficult. Absolutely. It is very hard.
11. Don’t lose sight of the big picture
Janice: It says don’t get hung up on superficial details like staging and paint color-
Anthony: Right. True.
Janice: It is pretty superficial. It goes back to you walk in, it looks beautiful, you’re excited, but you really have to keep in mind how much can you pay per month. And again, don’t look at the paint colors. Get the home inspection. What’s behind the paint? You don’t know. Yeah, that’s great. Don’t look at the superficial stuff, but you really have to look at the other more important things before you make your purchase.
Anthony: I’ll add one. It says don’t lose sight of the big picture. I mean, if you fall in love with a home that’s the most beautiful apartment or house or whatever, but it’s such a stretch on your budget that it’s emotionally stressing you and your family out for the next 30 years, it’s probably not worth it.
Janice: Absolutely. It’s better to stay within your budget, maybe have it a little bit smaller than you’d like but to know you’re gonna be comfortable each month.