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If you are a younger professional you may be looking to buy a house. While I know that may not be a reality for some people, some will have saved up, maybe have parents help, or just are really fortunate to be able to afford a house. Or live in an area where houses are a little more affordable. But, the housing market right now in a lot of places is quite competitive.
Whether it be competing against other homeowners, competing against corporations who are buying up land and properties or there just being a very small amount of options, your overall options may be limited.
For many first time homebuyers, your budget may not be very high depending on your debt to income ratio, your down payment and then your income.
So while I am no expert in this process (I have no degrees or accreditations), I wanted to share some suggestions of things to consider when you are house hunting. These are things I have learnt from experts like realtors, reading a ton of articles, and also talking to people who have experience buying houses and knowing what mistakes they made! I know they have been very valuable in my house hunting process so far.
These are my personal experiences and opinions. I am not expert in this at all so for more tailored advice, talk to a local realtor or financial advisor/mortgage company.
1. Be very clear on your budget.
Your budget for buying a house is much more rigid than a budget for maybe a months worth of grocery shopping. For many people, you will be paying this mortgage for 30 years so you need to be comfortable with this payment for the foreseeable future (unless you refinance).
I have always been of the opinion, just because a lender is willing to give you a certain number does not mean that you need to buy a house that uses it all up. So if they say you can spend up to $500,000, maybe consider something lower than that. Remember, there are a lot of expenses up front with buying a home and moving into it, and these all have to be paid with liquid cash:
House Expenses
- Down payment (ideally up to 20% to avoid private mortgage insurance if you can)
- Home inspection
- Closing costs (can be up to 5% or more of the house cost)
Additional Expenses
- Moving costs
- Buying out of your lease (if you have one)
- Furnishing the house (while this isn’t immediate, you can’t sit on the floor forever
And those are just expenses needed if you are buying a perfect house that you can move into. If work needs to be done, then that will have to be spent as well.
Make sure your budget is clear and that you make spreadsheets to know what assets you have, what you can put down without draining your resources, approximate price of additional expenses (and be conservative – rather approximate high and be surprised when the price is lower), and then know how much will be going out as you pay your mortgage each month. You do not want to bite off more than you can chew.
Make sure you also keep an emergency fund for the house.
While you can have the best inspection, or look super closely, things go wrong and it can be expensive. New roofs can be well into the 5 digits to replace, boilers or HVAC systems can be in the 4-5 digits easily, trees fall over and cause damage as well. So make sure you always have emergency money ready in case there is a disaster that was either overlooked or just naturally occurred. These things can happen any time you get your keys and it will be your responsibility to fix.
Buying with friends? Hmm…maybe not?
Younger people are starting to buy houses with friends and while this can be great to afford a place there is a lot to consider here. They say not to buy a house with someone you are not married to and I think the same cautions apply to buying with friends.
What happens if you all fall out of friendship? While you never think it will happen, do you have a contingency? For many it just means you have to sell the house and then split the profit.
What happens if one friend loses their job and cannot pay their portion of the mortgage? What will you do?
Making sure you are aware of all the risks of buying with friends is important before you do.
2. Find a good realtor.
While you can search yourself, and maybe you have the skills to do so, it is usually recommended to have a realtor. They have that experience to do everything from find things you’re looking for to crafting a well written offer. Do your research on your realtor and make sure you are comfortable with them. Until you sign an Exclusive Right to Represent Buyer Agreement, you can leave your realtor. So make sure you meet with them or have a call and see if you trust them. They should be working for you and listen to you, and be honest!
You can go via word of mouth to find someone who people have used and loved, read reviews online, or a lot of town have Facebook groups where you can ask your local community for recommendations!
Do not sign that Exclusive Right to Represent contract until you are comfortable with them otherwise you will legally be stuck with them. And make sure to read that agreement fully – make sure if you decide to cancel because you are stopping your search at any point you will not owe them money unless you agree to it. It is a legally binding document so read the small print.
3. Inspect each house you go to see.
While you are not an inspector, there are certain things that you need to be aware of when you go to visit a house. This will tell you if you if it is even worth the price being asked (a good realtor will also be able to guide you on this) and it will also inform you if you can afford the house. By this I mean if there are things that are old and need to be replaced and they are asking $500k but you feel there is $20k of work that has to be done to make the house reasonable, you may only put in an offer for $480k or put in the full offer but ask for credit on the closing costs.
Things to look at/pay attention to (not comprehensive but some of the big ones):
- Roof – do the shingles look old and worn? Is the flashing looking okay?
- Hot water heater (average life is 10 years so if it’s close to that life end, may need to be replaced)
- HVAC system (check the brand, the quality of the outside and inside unit)
- Check the AC works (just because the AC system looks good, feel the AC actually working in the house)
- See if bathrooms have extractor fans (good to have to avoid moisture)
- Smell the air – if it is musty or damp there may be a moisture problem
- Look at the trees in the yard – do any look like they may fall? And if they do what damage could they cause?
- Runoff around the property – does the garden slope towards the house and if so is there ample drainage?
- Any signs of leaks in the house? Brown spots on the ceiling? Bubbling walls?
- Any mold?? (mold remediation is expensive)
- Does the foundation have any massive cracks through it which make you uncomfortable?
- Any work that you see that was done recently – was it permitted? If it wasn’t, getting insurance can sometimes be challenging/impossible as the house may not be up to code!
While some of these things shouldn’t stop you from putting an offer in, you should be aware to write your offer. You may need to have concessions because you know that things have to be fixed to make it safely livable. And to note, these are all things to look at no matter how old the house is. A new house can have just as many problems as an old one!
4. Look for the problems.
We can be blinded by a house that we think is beautiful. You may see a gorgeous location, a perfect house and all other things that check your boxes. But you don’t want to be blinded by the good and miss the bad. Really make yourself look around for problems because you don’t want to get a house that someone band-aided and suddenly you have a money pit!
5. Location, location, location!
While some houses are very well priced, there is sometimes a reason, and that reason isn’t always due to structural issues. Sometimes houses are in crappy locations. They may be in the middle of nowhere, you may have to drive 2 hours to get your groceries, you may be nowhere near a fire station, it may be 3 hours to the nearest airport! These are all things to consider. Just because it looks like a good deal does not mean it fits your lifestyle.
As young people, most of us want to be near some kind of social life, especially if you are single. You don’t want to get a property and completely remove yourself from everyone. Some of you out there may really want that, and if you do, then there are some great deals out there! But if that is not what you want, make sure you do your research.
- Where is the nearest airport?
- Is your favorite supermarket near by?
- How close are doctors offices?
- Where is the nearest hospital and is it a good one?
- What is the local town like?
Google Maps is your best friend. You can learn a lot about a house based on Google Maps. Street view allows you to check the area and “drive” around to get a feel for the area.
Ask yourself:
- Can I see myself living here?
- Would I feel safe here?
- Would I feel like I fit in?
While some of those questions can maybe feel a little weird, it is fair to ask. You don’t want to live somewhere that you don’t feel comfortable, for whatever reason that may be.
A house is a huge investment and you don’t want to choose wrongly and be stuck with it.
6. Do your market research and don’t overpay.
While a good realtor should direct you, you can only ever trust yourself. A good rule of thumb is to look at sold houses in the area you’re looking at and find things that are comparable. Is what you are looking at priced well?
Houses are investments so the goal is when you resell it again, you can make some money off of it. But if you overpay up front, or have to do so many repairs to the house, sometimes you spend more than you will get in return and then that is a loss.
People selling houses, many times, overprice the house a bit. That is just natural but that is where negotiations come in. $10k less can be a world of difference in some cases. You don’t want to really want a house and pay way more than it is worth.
Similar to going to an auction – you have to know what your limit is based on your research to not lose and stop offering after a certain point. Bidding wars on houses can really have a house sell way over what it is worth.
I have personal experience with this:
We listed a house a bit above market value that needed work in hopes that someone would come in around the market value and we would get the goal amount that we had. But due to the interest, someone paid significantly over the market value and asking price, and with the work needing to be done, will never recoup the money if they choose to sell it one day. All because they desperately wanted the property. I mean I am not complaining, but from an investment strategy it’s not the way to go.
7. Don’t put all your eggs in one basket.
Similar to dating, you can’t put 110% into one person so early on in a process. Don’t just go on a date with one person. Don’t go and see only 1 house. You need to go see a few and maybe interested in a few. But put an offer in one the one you are most interested in. It is common that the house you want someone else will get and the reasoning could be any number of things. Especially in this market, it’s always competitive. So see a lot of houses.
It’s also good to see quite a lot to get a feel for what you do and don’t like in a house. Do you like carpeting and if so where? What kind of house style do you like? Do you want 2 or 3 levels, or maybe just one? I have seen quite a few houses, some that I knew I wouldn’t put an offer in on, but I just wanted to see it and experience it. It has helped refine what I am looking for and can be useful.
You also start to learn what the pictures show and what the reality is. Pics online can be colored or use wide angles so after you see houses in person and compare it to what the listing was, you can get a bit better at picking and choosing. But don’t see one and be like “Welp, that is it. That’s the one!” But go and see a few. There is no harm (except a bit of gas money and time!)
Buying a house is a process and one that you don’t want to rush.
In many cases there is no rush to buy a house. And if you do have a rush because of your situation then there are certain risks you will have to accept. And if that is the case, make sure you have the financial cushion to cover you in case you buy a house that does come with problems.
There are tons of amazing posts and articles out there by experienced buyers and sellers, as well as relators, to help guide you. And your realtor should be able to help you out too. Never assume anything and ask, ask, ask. There is no such thing as a dumb question as a first time home buyer!
Take your time, have fun and don’t give up. It is exhausting but so rewarding!
