Are you tired of apartment hopping, rent hikes, and dreaming of a place you can truly call your own? You’re not alone. There are 44.1 million households that rent their homes in this country, and 72% of renters want to own a home of their own.
For many renters, they’re not sure they’ll be living in the same town long enough to warrant buying a house, and so they defer homeownership. But for the majority the issue is affordability.
Of the 72% of renters who want to own a home, only 45% of them are able to afford a home where they live, which makes purchasing a property difficult, especially if commutability is a factor. So, if you’re thinking about buying a house, let’s talk about finances! Here’s 5 tips to get you started in your homeownership journey:
1. Getting Pre-approved
Many aspiring homeowners head straight to Zillow and Realtor.com when their mind is made up they want to buy a house. While Friday night Zillow-scrolls are highly pleasurable (you’ve seen the Saturday Night Live skit about Zillow p*rn right?!), there’s actually an important step you need to take before you reach the househunt stage.
Acquiring pre-approval from a highly trusted local-to-your-area mortgage lender will give you an understanding of:
- your exact financial circumstances
- how much house you can afford
- what steps you need to take for better affordability
Acquiring this intimate knowledge of your monetary circumstances will also give you a clearer understanding of your budget going forward to be able to afford a house.
Most importantly, pre-approval also gives you a leg-up on buyers who don’t have their pre-approval sorted, because it looks favorable to sellers to provide a copy of your pre-approval alongside your offer. Having your pre-approved amount in mind means you won’t be wasting your time searching for homes too far out of your budget.
And speaking to MULTIPLE lenders about getting pre-approval can save you money, because you can compare services and interest rates, and some lenders even offer competitive money-saving products that others’ don’t. Shop around! The only time you won’t want to get a lender pre-approval is if you’re buying a property in cash.
2. Work On Your Credit
This may seem an obvious one, and there’s a gazililon tools online about how to work on your credit… but did you think about speaking to a lender first? Before you use that work bonus or birthday check to pay off the car loan (or that Nordstrom credit card you never meant to apply for 😉) a local trusted lender will be able to give you advice on exactly what you should do to get the best debt-to-income ratio and secure the best interest rate on your mortgage.
And that could save you a TON of money 👆. Not only that, but many mortgage lenders have the ability to ‘hurry up’ the process of improving your credit score. If you’ve attempted to pay off debt to boost your credit before, you may know it can take several months to see that improvement reflected on Experian and Equifax. Your local mortgage lender can push through a credit change to hasten the process, which is especially helpful if you find a home you like and want to get pre-approved for it quickly. It can take a matter of weeks rather than months, which is highly beneficial in a sellers market.
3. Automate And Maximize Savings
Naturally, an important part of saving for a house is the actual saving part. If you have trouble physically transferring money into your savings account (and end up spending that extra cash in your bank account on clothes or vanilla lattes) automation is the way to go. Most checking accounts will let you set up automatic transfers into a savings account so the money is easily accessible, but not noticeably available for retail therapy.
However, most banks’ savings products offer little incentive by way of interest, but you’ll find the stock market can be too volatile for short-term savings. Instead consider a high-yield savings account. Shop around to find a product that works for you.
4. Function Over Aesthetics
In the South Jersey sellers market, ‘pretty’ flipped homes with updated bathrooms and kitchen and beautiful curb appeal are flying off the market within a weekend and often going for $50,000 over asking price. And of course it’s easy to step into a listing that’s freshly painted with sleek new quartz countertops and think “this is the one”.
Instead: walk in with a money-saving mindset. Know that these beautiful move-in ready homes are going to be highly desirable, so look for the functional upgrades over aesthetic upgrades. Ask these questions:
- How old is the hot water heater?
- When was the roof last replaced?
- When was the HVAC installed? And when was it last serviced?
- How old are the windows?
- Is there a working sump pump or perimeter drain system?
- Does the home come with kitchen appliances, and a washer & dryer?
The above is a list of important and costly details that you’ll want to know. A new roof and HVAC system are highly valuable, yet it’s far more likely the newly-decorated house with the stunning kitchen and 30 year old roof will attract more attention than a slightly outdated home that has brand new windows, roof and hot water heater.
Your opportunity is finding the house with great bones and functional upgrades vs the recently-flipped house; you’ll likely get a better deal, and with a bit of TLC and investment down the line, you can update your new house exactly how you want it (and gain some significant equity in the process).
5. Build A Team Of Real Estate Professionals
As mentioned above, having a trusted, local lender on your side is incredibly important, as they’ll be doing all the legwork to get you the best deal possible for your mortgage.
A huge part of purchasing a house is negotiation. And here is where you’ll want to find an expert real estate agent who not only sits you down and conducts a thorough Buyer Consultation so they understand exactly what you need, but also provides you with expert knowledge and advice while touring homes.
Remember that Function Over Aesthetic section we talked about? Well that is the time to lean on the expertise of a real estate professional. A great agent will acquire for you the Seller’s Disclosure, so you can see what the seller reports about the home, and they can chase up all those dates of when the systems were last replaced and serviced.
A great agent also will be able to tell you, by eyeballing it, how good a condition the roof is in, whether there appears to be any termite or water damage in the basement, and other important parts about a house (though this will not be 100% accurate — you'll still want to conduct a home inspection).
You’ll also want to hire an agent who truly understands the local housing market in the area you want to buy in. You’ll have so much more negotiating power if your agent has pulled the “comps” to see what homes in the area are worth, and will ensure you don’t ‘overpay’ for a house.
That realtor should also be able to recommend a great real estate attorney, who will protect you throughout the transaction and potentially save you thousands of dollars, and a top-notch title agency who provide all the necessary services to ensure the home you’re buying is legitimate!
Between all of these incredible real estate professionals, you’ll find the home of your dreams in no time!
