Thinking about home ownership? You’re not alone. TransUnion is currently projecting that at least 8.3 million first-time homebuyers will enter the mortgage market between 2020 and 2022. Millions more will take steps to upgrade their home situation. Statistically, every 7 or so years, you’ll be home buying, selling, or both.
Home ownership is the fastest path to wealth, and 90% of millionaires acquired their money via real estate. In fact, the average homeowner in the US has $176,000 in equity. This is essentially a nest egg you build through a combination of sweat equity, appreciation, amortization (paying down your loan) and the extra money you make because of the mortgage interest tax deduction. If you’re ready to get on this path, or step up the property ladder into the next home, then we have some tips that will put you ahead of most buyers.
While the process is generally positive for most people, the best way to protect yourself is to be informed. Information reduces stress, and let’s face it — buying a home is stressful. If your home buying experience is stress free you’re either overpaying or buying something no one wants. There’s a lot to be nervous about, from inspections to appraisals, to financing, to the “unknown unknown”, those things that you couldn’t even have known to look out for.
Finding a home has changed dramatically in the past years. A myriad of great websites and search tools makes it easier than ever to pinpoint your perfect home. Where the complexity really lies nowadays is after the home you want to live in has been identified.
Here’s our top tips to buy a home like a pro even if it’s your first purchase.
Always do a second showing before making an offer
All those fun TV shows like Househunters or Beachfront Bargain Hunt are fun to watch (trust us, we like them too), but they do show a very simplified version of the process. Not only can you see a many houses as you want, but you can also do second showings (or third!). The benefit for you is to see the property through a bit more realistic eyes and catch things you might not have seen the first time around.
Tips for your second showing:
- Bring a flashlight, and check out the crawlspace and attic. You can get a feel for how well maintained the home is, and see evidence of bigger issues like mold, water, or pests.
- One neat little device we use is these little FLIR Infrared camera, which is a great way to see potential issues like drain clogs, cold spots and more
- Take a few moments to test the water pressure, the stove, and a the lights. Second showing are all about saving yourself the time of going under contract and then backing out later.
- Drive the neighborhood and make sure it’s a place you’d like to live. Look for traffic patterns, hangouts, bus stops and more. Some people say location is a very important to Real Estate 😉
- Check out the bus and transit options nearby. You can’t buy time! Getting to and from work quickly is important.
Don’t be afraid to use your agent
Agents, especially if you have an experienced one, are a wealth of knowledge and connections. Some things that you may not know that you can use an agent for:
- Agents can get bids on nearly any home renovation or change you’re looking to make, from a new roof, to knocking down walls, to bringing in gas service or other improvements that might bring a couple of your “must-haves” to a home that doesn’t yet have some essential feature.
- They can connect you to professionals like lawyers, lenders and more, should you want to look deeper into something about a contract, or find a new lender.
- They can research zoning laws for things like Accessory Dwelling Units, or Detached Accessory Dwelling Units, adding a story on top, or other significant changes you might like to make.
- They can research rental rates, AirBNB restrictions, or other ways that you can monetize your property.
- They can help you shop for insurance agents.
- They can give you neighborhood price growth for any historic period of time, helping you to determine the economic direction of the neighborhood.
- Agents can even set you up with automated emails that will notify you when a property in your criteria comes up. We have a lot more granular controls than public websites, so if you have tight criteria, don’t be afraid to use us!
Aside from that, don’t be shy: Most of us got into real estate because we love homes and because we love people. Our tastes are not your tastes, and we can be the most useful when we communicate freely about what you need and how you’re feeling during the process.
Pre-inspect if you’re serious
Pre-inspections, or inspections that are done before the offer can give you a strong strategic advantage in competitive situations. With a pre-inspect, you know the homes issues and the seller has a better idea of their proceeds, as well as the peace of mind that there is “one less out” for you to take on the purchase. While it’s not appropriate for every situation, specifically in a buyer’s market, it can help you a lot in a seller’s market.
Don’t change your pay basis
Banks know that in a high cost of living area like Seattle, people change jobs from time to time. Many years ago banks liked to see 2-3 years at the same job to approve a loan, but now that’s not the case. However, they are often picky about seeing someone who was at a W-2 job at a W-2 job for 2 years, and likewise if you consult, they like to see that you’ve been on a 1099 basis for 2 years or more. There’s quite a few other similar items to be aware of that we talked about in our blog So you want to buy a house in a year with some helpful tips on preparing for the big purchase.
Consider the cost of being too picky
“In January 2019, a family with the median household income in the U.S. could afford to buy a $373,900 house. By August, that home had appreciated to $395,000, an increase of $21,100.”
Buying property in a high cost of living area like Seattle is essentially insurance against rising housing cost. In our experience, most people (aside from the ridiculously wealthy) can’t have all the things they want in a home. For most of us, it’s all about balancing the “must-haves” with the “can-live-withs” and the “can fix laters”. In a market like Seattle, if you have a budget of 600k, you’re going to be losing $1K-2k of affordability a month. This is not to say you should jump at a house you don’t love, but look at homes with the idea that $5-10k could give you a completely new bathroom, a new fence for your favorite fluffy friend, or build a new garage. Don’t make the mistake of passing up “pretty awesome” for perfect.
View your first property as a “home” first, an “investment” second
Many people rightly view their homes as an investment, but I think it’s important not to use investors criteria to select homes. While things like the 1% rule (a months rent should be 1% of the homes value) are hard to find in highly desirable neighborhoods, and arguably difficult to find anywhere in Seattle.
We should also expect that valuations (like Zestimate or Redfin Estimate) are highly volatile and more-so the farther your property is from the center of commerce in your area.
In the long run, the only thing we can’t buy is time, so make sure the commute is comfortable, parking is adequate, and you’re honest with yourself about what you need to make a home work.
Don’t underestimate closing costs and move-in costs
When buying a new home, particularly one that is large than your current home, you’ll need money for moving (we give you our moving van for free to help with this!), money for new furniture, and there’s always something that inevitably needs replacing in the first couple of months. We always advise our clients to have about 10k in reserves after purchase to ease the transition.
Closing costs always have a few unexpected items, and you’ll always find a few critical changes that are needed right away. Plus, there’s nothing like painting your new home to make it feel like your own.
Engaging an agent early on in your purchase gives us the best opportunity to learn your needs, to help you connect with lenders, and to find the perfect property. Send us a message here and let’s get started!