Today’s market is competitive. There’s no other way to put it. Housing inventory is low. This means fewer homes are being listed and buyers are being drawn out by the record low mortgage rates. While it might seem like a win-win scenario for buyers and sellers alike, this market brings upon its fair share of challenges. As a buyer, it can be frustrating to navigate the conditions of this challenging market without being prepared. Check out below for 10 Tips for Starting Your Home Search to give you the best competitive edge in today’s market!
#1 Start Saving Early
The sooner you can start saving, the better! Some buyers are surprised to find that there are more costs associated with buying a home than just coming up with your down payment! Below are some additional costs that often get overlooked when buyers first start searching for their dream home.
Down Payment:
- Down Payment: Your down payment is a percentage of the total home price that is given to sellers in advance of your closing on a home. This payment is not provided by your lender or included in your total mortgage amount. The percent that you put down depends on the type of mortgage you choose and your lender. Some loans will allow as little as 3% down depending on your credit and first-time home buyer perks. However, even smaller down payments can be a challenge to save up. Start as soon as you can! [Check out our posts on “How to Save for a Down Payment” and “8 Strategies to Help You Save for a Down Payment Fast”!]
Fees:
- Inspection Fees: Home Inspections are conducted by a professional home inspector hired by the buyer. Home inspections give the buyer a general idea of what’s going on in the home, the age of certain maintenance items, and give you insight as to any potential issues that should be remedied before you proceed with the purchase. An inspection in the state of New Jersey can range anywhere from $600 to $1,000 depending on what you choose to have inspected. You can save on home inspections by shopping around and also using your agent’s recommended vendor!
- Attorney Fees: In the state of New Jersey, the original purchase agreement that’s signed by the buyers and presented to the sellers gets completely rewritten by each party’s Real Estate Attorney in a process called Attorney Review after the sellers accept your offer. Having a good real estate specific attorney is crucial to any Real Estate deal! Attorney fees vary depending on who you choose. However, fees generally range from $1,300 to $1,400. This flat fee covers anything related to the legal process of closing on your home.
Other Expenses:
- Closing Costs: Closing costs are the fees and expenses you pay to finalize your mortgage. Most can vary but as of 2017 in the state of New Jersey, closing costs ranged from 2% to 3% of the total loan amount on the home. In some situations, a buyer’s agent can negotiate to have the seller pay a portion of the closing costs however, it usually depends on the seller’s circumstances and the market demand of the property. [What to know more about Closing Costs? Check out our detailed post here: “Closing Costs De-Mystified!”]
- Moving Expenses: After you close on your home, you’ll want to have some extra cash on hand to cover the expense of moving in! These expenses often get overlooked so it’s important to have a rough estimate from early on of how much it will cost to get you from your current home to your new home. Moving expenses can vary a lot depending on how hands-on or hands-off you want to be! Hiring a white glove moving company will definitely cost you more than packing up your home by hand and renting a U-Haul. Shop around and get quotes from several different movers before you decide how much you have to spend on moving.
#2 Check & Strengthen Your Credit
Just as with any loan, your credit score will determine if you qualify for a mortgage. It will also play a part in the interest rates that lenders will offer to you. There are a lot of ways that you can strengthen your credit score over time. Take a look at the few tips below or read our in-depth post on “Credit Building Hacks from the Pros”.
Credit Building Tips for Starting Your Home Search:
- Get copies of your Credit Report: Get free copies of your credit reports from the three main credit bureaus- Experian, TransUnion, and Equifax. Check for any errors (believe me, it happens!) and dispute them ASAP.
- Pay Bills and Keep Credit Card Balances Low: Paying your bills on time (or even a few days early) is one of the main things that influence your credit score. Keep your credit card balances as low as possible.
- Expert Tip #1: If you have any outstanding credit card debt, pay slightly over your monthly minimum payment each month. This will help your credit!
- Expert Tip #2: Do not make any big “loan purchases,” such as leasing or financing a new car, in the time leading up to purchasing a home. Those lines of credit will go against you when qualifying for a home loan!
- Got Credit Cards? Keep them Open!: As backward as it may sound, keep your current credit cards open! Even if you have no balance and you don’t use them! Closing lines of credit decreases the amount of credit available to you and affects your available credit. If you have any credit card debt, this will affect your credit ratio and can potentially lower your score.
- Track Your Credit Score: There are a plethora of free places where you can track your credit score for free. Some that I’ve used in the past are Discover (if you have one of their cards), NerdWallet, and Credit Karma. Keeping track of your credit score month to month will show you that your hard work is paying off. It will also keep you alert to anything that may impact your score.
Keeping your credit in check early can make a huge difference when you’re starting your home search!
#3 Explore Different Mortgage Options
Shopping for a mortgage is kind of like shopping for a car. There are different types of mortgages that, if you qualify, you can choose from. Each type of loan has set specifications and requirements. Some of the most common loans are Conventional Mortgages, FHA Loans, VA Loans, and 203K Construction Loans.
You also have a choice when it comes to the term of the mortgage. For example, a 30-Year-Fixed Mortgage means that you will pay your mortgage over the course of 30 Years and the interest rate will stay the same. A 15-Year Mortgage means that you will pay your mortgage over the course of 15 years. These loans usually have a lower interest rate but the monthly payments are normally higher.
Once you decide on a lender, talk with them about which loan would best for your particular situation. Your lender is your friend. He or she is there to help you make sense of the financial jargon involved in mortgages. Ask them questions, tell them your concerns, and let them do what they’re good at- finding you the best possible option for your home purchase!
Having a better understanding of which mortgage you will be choosing gives you an edge when negotiating final terms and how much you ultimately feel comfortable spending when starting your home search.
#4 Compare Mortgage Rates & Fees
Different lenders have different fees and offer different interest rates. Most times, I suggest that buyers use the mortgage lender that their real estate agent suggests. Good agents have been around the block with many different lenders. They know the best of the best for their client’s unique situations. They’ve done the legwork for you and will usually give you two or three of the best lenders to use.
Reach out to each of the preferred mortgage lenders and see what they have to offer. Some may offer lower rates but have higher fees. Some, like larger banks, might offer perks to individuals who bank with them or open accounts with them. Each lender is different.
If you reach out to all of your agent’s preferred lenders and still aren’t satisfied, talk with your agent. They may have others that would fit your situation or can give you some guidance on finding another lender.
#5 Get Preapproved for a Mortgage Before Starting Your Home Search
Once you’ve chosen your lender and type of mortgage, it’s time to get pre-approved! Your lender will be able to get you a pre-approval very quickly in the form of a Preapproval Letter. This letter states how much, with your credit, downpayment, mortgage type, and circumstances, you can spend on purchasing a home. Preapproval letters are normally good for a time span of 6 months (although this does vary depending on your lender). If your letter expires before you find your dream home, your lender can draw up another one for you!
This preapproval letter is vital when purchasing a home. When putting in an offer on a home, all seller’s agents will require you to submit your pre-approval along with your offer. I recommend you get your preapproval before starting your home search. In our competitive market, the prepared buyer who can put their offer in quickly will have the edge in comparison to the buyer who needs to wait to get their preapproval letter from their lender which then delays putting in their offer.
#6 Decide How Much You Can Afford
Contrary to what people believe, your mortgage pre-approval is the maximum loan amount that you have available to you. That doesn’t mean that you need to buy a home that costs that much! I have many clients that have been approved up to $900K and have chosen to spend only $500K of that pre-approved amount on their home and that is completely okay!
After you get pre-approved, decide if you want to spend that full amount on a home or if you would like to only spend a portion of that loan amount. A good agent will only show you houses in the price range that you are comfortable spending and NOT try and get you to stretch your budget. In fact, when my clients are looking to only spend a certain amount on their home, I often suggest that they get their pre-approval letter re-written to reflect the amount they’re offering on the home.
#7 Choose a Real Estate Agent Carefully When Starting Your Home Search
This is so important, I cannot stress it enough. I could go on for pages telling you how vital it is to choose the best agent. Your agent can make or break your deal. Period. A good agent will not only comb through pages of listings to find the best homes on the market that meet your needs but they will also guide you through the negotiations and the tedious process of closing. They will look out for your best interests and be the buffer between you and all of the technical little roadblocks that pop up along the path to your dream home.
The best agents will pick up the phone, talk you through each step of the process, answer every little question, address every concern, and get you whatever you need to close on your home. They shouldn’t walk away once the papers are signed. They should be your confidant and trusted advisor through every step of this process.
Honestly, I’ve heard some horror stories from clients about agents they’d worked with before me, and let me tell you… I sometimes can’t believe what I hear. If you can’t trust that your agent will go up to bat for you when you need them to, it might be time to rethink who you’re working with. Check out my post on “How to Find the Perfect Real Estate Agent” for the only guide you will need for selecting your agent!
#8 Know the Difference Between Your Needs & Wants
When you start looking at homes, you want to be able to hit the ground running. Before you start, make a list of all the things that you MUST- HAVE in your home- what you need. These are things like the location, number of bedrooms and bathrooms, kitchen and room size, yard space, etc… A lot of times these may be things that you can’t change about a property.
Then, make a list of things that you WOULD-LIKE-TO-HAVE in your home. These are the things that would be really that you want or would be nice but shouldn’t make or break your decision on whether or not to put an offer in on a home. For example: do you really need all-white kitchen cabinets right now or can you paint over/ replace the ones that are currently there? Can your Man-Cave be a future renovation? Paint color, flooring, cosmetic finishes, can all be renovated in due time.
From Experience…
In all honesty, this has such an impact on the success of new home buyers entering this market. If you don’t have a clear vision or idea of what you need and what you would like to have in your home, it makes it VERY difficult to make a smart decision when choosing to put in an offer on a home.
I’ve had clients lose out on their dream home because they didn’t have a clear idea of their Must-Haves versus their Would-Like-to-Haves. They ended up not putting in an offer and realizing down the line that the house would have been perfect for them but was missing a lot of the cosmetic finishes that they wanted that they could have added later on. Eventually, they found another perfect home and didn’t make the same mistake twice but they would have saved themselves a lot of time if they had a clear vision of what they were willing to compromise on from the get-go.
Trust me. Save yourself the stress and iron out those details now, before you commit to starting your home search!
#9 Research & Choose a Neighborhood to Live In
When starting your home search, it’s a good idea to narrow down the area(s) that you would like to live in. Having a list of towns that you’d like to live in will mean that you can focus your search. It also gives you a better chance of finding what you’re looking for.
Do you want to be close to your family? Friends? Your place of work? What other things are important for you to be close to? Supermarkets? Shopping malls? Downtown areas?
Location is a very important part of purchasing a home. After all, it’s one of only a few things that you really can not change about your home. Think about where you see yourself living and choose 3-4 towns that you would want to purchase in. Knowing this ahead of time will give you an edge when starting your home search!
#10 Make the Most of Your Private Tours
When starting your home search, remember to make the most of your private tours. Private tours are home tours that your real estate agent schedules where you can view the home on your own without going to an open house. Open houses are a great way to view homes. However, with many people viewing the home in a 2 to 3-hour time frame, it’s nearly impossible to get a good idea of how YOU will fit into this home. They’re not personally customized for you and your vision.
During a private tour with your agent, you have the chance to walk the property at your own pace. This helps you get a real feel for the home. You have the chance to talk candidly with your agent who can then help you with making an informed decision about your likes and dislikes about the property.
To make the most of these private tours, keep an eye out for some of the things listed below.
Tips for Private Home Tours:
- Things you can’t change: Room size, location, layout, yard size, etc… pay extra close attention to the things about the property that you maybe can’t change or that would be very costly to change to fit your needs. If you are going into your purchase with a renovation budget, have an idea of how much your desired renovations would cost so you don’t bite off more than you can chew with renovating a home.
- Big Ticket Issues: These issues will almost always be found by your inspector. Especially if there is health and safety involved. Sellers will sometimes offer to fix the issues. However, in a competitive market, they may be willing to find a buyer who wouldn’t care about taking the hit and fixing the issues out of their own pocket. Keep that in mind when you notice big issues in a home such as structural cracks, leaks, or other red flags. Good agents should be able to pick up on things that would signal an issue for a home inspection. They also can give you an idea of how those issues might be handled while the home is under contract.
- The Good Things!: Sometimes, buyers are so focused on what might be wrong with a home that they lose sight of all of the great things! Don’t get so caught up in the potential issues or possible problems that you lose sight of the beautiful natural light that fills the home or the charm and character that make a house unique. Separate all of the things you want to change from the general “vibe” of the home.
One More Tip for Home Tours…
Sometimes it helps clients to take notes on the properties they see. I always give my clients a folder with the hot-sheets of all of the homes we’ll be seeing in one day. This helps them keep each home separate (so they don’t all blur together). It also gives them the general info and specs on the home and a place to write down their thoughts on each property. What did they like? How about their dislikes? Is there anything they would want to change? What questions do they have for me or want me to find out for them about the home?
The Takeaway for Starting Your Home Search
The prepared Buyers are the happy Buyers when starting your home search. Be prepared so you can compete with the big fish. You will save yourself the time and the headache of learning through this process the hard way. And remember, when in doubt, trust your agent! No matter what step of the process you’re in, they are there to help you through.
Ready to start your home search? Contact Me or reach out via Email!
Have any other Tips for Starting Your Home Search? Leave it in the comments below!
