1. Make A List: Must Haves vs Nice To Have
Make a list of your must haves vs nice to haves. However, remember to be flexible, to an extent, once you start to look at homes. When we made our list for our first home we focused on our must-haves. As we started to view homes we realized that although some things were must-haves, if the home didn’t have every single must-have then that was ok as long as it was something we were willing to compromise on for that particular house. For example, we wanted an open-concept house, but the home we bought is not completely an open-concept. Yet, it is open enough that it wasn’t a deal breaker for us.
Make sure to take into consideration how many bedrooms or extra rooms you will really need. You don’t need a lot of rooms if you have no use for them. However, you don’t want to buy a house and realize you have come up short because you didn’t take into account needing a room for an office or once you decide to expand your family, now you don’t have a guest room.
Try to think ahead: Is your family going to be growing? Do you want or need a basement or a bonus room? Does your wife/husband want to be a stay at home parent meaning you can only take on so much mortgage?
Other things to consider when making your list is
- distance from your job
- school ratings,
- and distance from interstate and major highways if used frequently.
2. New Build vs Established Neighborhood vs Fixer-Upper
There are pros and cons to each. With a new build, you might be able to pick your floor plan as well as certain finishes. You might even be able to pick your lot.
With an established neighborhood it’s kind of like what you see is what you get. However, this might not be a bad thing because you will be able to see what the neighborhood is already like. For example, do people tend to keep their grass cut? Are people constantly parking in the street? Does it seem like people are taking pride in their neighborhood or do they not care?
If you’re considering a fixer-upper, then there are basically two types –
the one that needs to be completely gutted and finished before moving in, and
the one that is practically move-in ready, but needs some updating to suit your taste.
With either of these, you will have to take into consideration your budget and if you can afford to fix up a house. You should factor these costs into your budget along with the time frame it will take to get these things done. Also, keep in mind that just because you can’t afford one fixer-upper doesn’t mean you can’t afford a fixer-upper at all. You just have to choose something within your budget.
As much as we are into budgeting, we didn’t quite consider the money it would take to update our entire house. However, it’s working out for us. It’s taking us a little longer than we expected, but that’s because we pay cash for everything.
3. Set Your Budget
Determine what your budget for your house should be and be realistic about it. And if you’re not doing an actual budget then now is the time to start – before you buy a house that is. If you need a budget template to use then check out our free one by subscribing to our blog and check out this blog post to help you get started.
Things that you should take into consideration when determining your budget are
any current bills/debt that you now have,
utilities for the new home, and
any other expenses that you pay on a regular basis (i.e. gas for your car, groceries, Netflix, etc.).
You don’t want to assume what you can afford for a mortgage. You want to be 100% sure. It would suck to buy a home and realize later you can barely make ends meet because you didn’t take all your expenses into consideration beforehand.
Once you evaluate your budget and start to look at houses, you might realize that your must-haves don’t fit into your budget. This is when you have to be honest with yourself and re-evaluate your list of must-haves.
4. Spend Less Than The Bank Approves You For
If I remember correctly back in 2013 we were approved for $300K+ for a 30-year mortgage. We didn’t have any business with a $300K mortgage. The mortgage company isn’t considering your future financial plans or obligations when they approve you for a mortgage amount. They don’t consider that you plan on having children and may need to pay for childcare. They aren’t considering that you need to invest for college for your kids or that you need to invest for your future or even that you want to pay it off before the mortgage term. You have to think about your future and the life you want for yourself, and then dictate what mortgage fits into that plan. You don’t want to be house poor.
side note – You also want to make sure you have a good realtor. You don’t want someone who is pushy and just trying to close the deal on the most expensive house that you are approved for.
When we had discussions about how much of a mortgage we wanted one of the most important items we discussed was how we would continue to pay the mortgage in situations where one of us couldn’t earn an income. Basically, we wanted a mortgage, that in emergencies, one income could support. We paid a little more than half of what the mortgage company approved. Little did we know that that decision would allow Kim to virtually be a stay at home mom. Also, since our mortgage is so low compared to what we were approved for, it makes the idea of paying it off a little easier to wrap our minds around.
5. Include Investing Goals When Setting Your Budget
Baby Step 4 of Dave Ramsey’s plan is to invest 15% of your income for retirement. When we got our mortgage this baby step wasn’t even on our radar. To be honest, looking back, I’m not even sure why we didn’t think about it. It might have been because we had a little bit of debt at the time, and we weren’t fully committed to the baby steps. Once we were out of debt and looking at baby step 4 we realized that getting to the 15% was going to be more difficult than we thought. That’s when we realized that this would have been a good conversation to have while we were going through the house buying process. This is tough. It’s tough because it may affect the amount of house you can buy. It’s hard to sacrifice your today for 20 or 30 or even 40 years in the future. The truth is that the 15% that you invest over that time period is going to be what provides for you when you don’t want to work or physically can’t work anymore. It’s just as important as the house you are buying today.
6. Get A 15 Year Mortgage
This is another one we got wrong. We went with the 30-year mortgage. Our thought was that if we got into an emergency having a smaller mortgage would help to ease the pain. Also, we promised ourselves that we would pay extra on the mortgage…eventually. Welp, in the 2 1/2 years we had that mortgage we never paid extra on it once, and we only paid off $6K in principal. We refinanced to a 15-year mortgage at the beginning of 2016 and paid off $6K in principal in about 8 months. If you compare the total costs of a 15-year and 30-year mortgage you end up paying a lot more interest on the 30-year mortgage.We originally justified getting the 30-year mortgage to help with emergencies, but you can offset this simply by building your emergency fund to more than 6 months. It doesn’t make sense to pay all that additional interest to help with emergencies when you can build up your emergency fund to offset the risk. And yes, you won’t be able to get as much house with a 15-year mortgage. In response, I asked myself these questions: “What do you want more – to get to financial freedom sooner or a bigger house?”
7. Visit The Neighborhood At Different Times Of Day
Once the offer was accepted on our house it was becoming more and more real that we might actually be living in that neighborhood. With us being first time home buyers we were very excited but nervous as well about making the right decision. One thing we did to try to put our minds at ease was to visit the neighborhood several times during our due diligence period. We had already visited the neighborhood during the day with our realtor. We also decided it was best to visit the neighborhood in the evening (closer to night time) and on the weekend because this is when most people are home. This way we could get a better feel for the neighborhood and somewhat the people in the neighborhood.
8. Set Aside Extra Money
When we bought our home there were a ton of things that we knew we wanted to do. Some were needs to us and some were definitely wants. For example, Kim hated the idea of using the toilets that were in our home. They were dingy and ugly, to say the least. After replacing them we found out that they were actually refurbished toilets. We made sure we had some cash in addition to our down payment and emergency fund so we could replace those toilets amongst other things.
Having that extra cushion to make your new house feel more like home is definitely worth it.
9. Don’t Feel The Need To Do Everything Right Away
We get it. You bought a new home and feel the need to make it “yours” right away. However, we’re here to tell you that you don’t have to do everything at once. It’s ok to take your time. Sometimes it’s even better to live in a space for awhile to see exactly what it is that you want and what it is that you like. For example, we didn’t buy all new furniture right away once we moved into our house. For one, it wasn’t in the budget, and we had some perfectly good hand me downs. When we did talk about the furniture we discussed getting a sectional in the living room. After living in our space we have come to realize that we don’t want a sectional in our living room. A sectional will appear too big in our space and cut off one of our walkways that we like to use. If we had bought a sectional right away or shortly after moving in, then we would’ve been stuck with it until it was no good anymore!
I recommend making a list of the things that you feel the need to do right away vs the things that can be done later on. And once again remember to be flexible and mindful of your budget as you might have to reevaluate your list. When we were waiting to close on our house we made our list of everything that needed to be done. Some things took precedence over others. For instance, we had to remove some wood alongside the house that was rotting and attracting termites. And then we had to put down sod. This took quite a bit of time and work, but Omar was adamant that it had to be done because we didn’t want termite problems. However, I wasn’t exactly thrilled that I had to wait another week or two to get blinds just because we didn’t have the time to work on it nor did we have all of the money to purchase the blinds. In the end, it all worked out though because we weren’t living in the house at this point anyways.