A Home Buying Guide from Summer House Realty
If you’re buying a home, you have questions – but might not know the right ones to ask.
In this guide, we’ll answer many common ones, give our input into some specific situations you may come across, and try to help you avoid falling into pitfalls that can hurt your ability to get the dream home.
Let’s get started, shall we? Click to jump to a section:
10 items to discuss with your realtor
Give yourself a financial reality check before hiring a realtor. Visit your desired lending institution and acquire a preapproval letter. This letter typically states the maximum amount you can borrow from them for your new home. Let your realtor know the house price range you’re comfortable in purchasing.
Also, give them a copy of your preapproval letter to show you’re a serious buyer with financial purchasing power.
Perhaps there is something you despise in a home or absolutely have to have in your future home.
Let your real estate agent know upfront about anything that would prevent you from purchasing a particular home. It’s a waste of your time and that of your realtor searching for and viewing homes that have specific deal breakers for you.
Relay to your realtor where you would like to purchase your new home. For example, do you want to be inside a particular city, on some acreage in the country, or somewhere in between?
Also, how far do want to live from your job, and is there a specific school district that you want for your kids (if applicable)?
If you need to sell the home you’re living in before you can afford the down payment for a new residence, tell this to your realtor. They can help you sell your current home as well as purchase your new house. If your agent thinks your existing home will sell quickly, they may help you look for a new place to live even before your current one sells.
Let your realtor know the timelines you have in mind regarding a new home. This includes shopping for, buying, closing, and moving into your new residence. For instance, if you don’t want to move until a year from now, it’s useless to start house shopping with a realtor next week.
Personal Wish List
Write down a wish list of items you’d like to see in your new home and give it to your realtor. These are not deal breakers but things you’d enjoy in a new house. The list gives them a good idea of home-related specialty items that are important to you. It might be a man cave, art studio, workshop, outdoor kitchen, a specific number of bedrooms or bathrooms, or a pool.
When a fixer upper fits your housing budget and construction skills, you need to convey that message to your real estate agent. Likewise, if you have absolutely no interest in do-it-yourself projects, let your realtor know that information. It makes no sense for a realtor to show you homes that may need to be remodeled, when you are only interested in homes that are move-in ready.
Floor Plan Preference
You might already have a specific floor plan in your mind for a new home. Express the house floor plan you prefer to your realtor so they can include that in the search for your ideal home. If you want a mother-in-law suite or a spacious open floor plan, make sure your agent knows what you have in mind.
A homeowner’s association can offer several neighborhood amenities, such as a swimming pool, clubhouse, tennis courts, golf course, or playground. However, these amenities do come at a cost to each homeowner. Let your real estate agent know whether you’re open to the option of living in an HOA community, as well as the monetary limit you want to spend on associated dues.
Real estate agents are typically aware of neighborhoods that are highly sought after, as well as those that are stagnant or declining in popularity. Tell your realtor if you’re concerned about resale value in your new home search.
If you’re planning to sell in a few years and try to upgrade, your decisions may vary greatly vs. someone hoping to lay down roots for the long haul!
Know your loan options
The 20% down payment requirement is a myth from decades past. There are multiple loan products allowing for 3-15% down payment, and some options for zero percent down!
While it is true that a larger down payment will lower your monthly payment, there are several scenarios where it’s not the right choice for you.
Let’s explore some loan options that don’t require a 20% down payment and take a further look at the pros of a smaller down payment.
If you are looking to get a conventional loan for your new home purchase below are some options that most mortgage providers offer. We can connect you with a trusted loan officer for all the details!
1.) 3% down mortgage: Some lenders will grant mortgages with borrowers putting as little as 3% down. Lenders like Freddie Mac may even offer reduced mortgage insurance rates on these loans. May include no first-time buyer requirements and no income limits.
2.) 5% down mortgage: Many lenders allow you to put down just 5% of a home’s value as a down payment. Most lenders will require it to be your primary residence and that your FICO score is above 680.
3.) 10% down mortgage: Most lenders will allow you to put down just 10% with a standard conventional loan. Even with less-than-ideal credit.
Other loan options include FHA, VA, and USDA rural housing, and all have less than 20% down payment requirements.
All loans will have income eligibility requirements. And, if you plan on putting less than 20% down you will be paying PMI (Private Mortgage Insurance).
Why make a smaller down payment?
If you are thinking of buying a home, but you want to wait until you have 20% saved as a down payment, here are a few things to consider. Per this money.com article, it can take a first-time homebuyer nearly eight years (!!!) to save up the 20%.
You know what else you could do in that time? Live in a home that’s yours and building equity, which allows you to sell it later for more value.
Be sure to weigh all your options prior to deciding, but know that homeownership is both possible and, in most cases, the smarter financial choice even without a large down payment.
Other benefits to putting down less than 20% include:
- Conserve cash: Rather than emptying your savings account you will have money available to invest and continue to build your savings.
- Pay off debt: The average Floridian has close to $6,500 in credit card debt. Rather than put a chunk of your savings on a down payment, use that money to pay down credit card debt. Credit cards usually carry a high interest rate, so it makes more sense to pay toward that debt. Also, there is no tax deduction for credit card interest, while there is for mortgage interest.
- Improve your credit score: The higher your credit score, the better mortgage rate you can qualify for, especially if your score is above 750.
- Remodel: You may be purchasing a fixer upper. These additional funds will help you tackle projects to make your new home exactly how you want it. Or pay for new furniture.
- Build an emergency fund: All homeowners know the importance of an emergency fund. Unexpected issues occur. Experts recommend budgeting 3% of the value of your home annually for maintenance and repairs. And saving for a rainy day allows you to be prepared for auto maintenance and repairs, medical expenses, vacations and holiday spending.
Five common home buying pitfalls to avoid
These happen far too often, but a good real estate company is willing to have the honest conversations you’re looking for to make the best decision possible for you or your family.
Are you potentially guilty of any of these?
Going over budget
A CNBC news article reported 64% of millennials have regrets about buying their current home. One of the main reasons for this regret was that maintenance and other costs were too high.
If you want to be happy in your dream home, it needs to be one you can comfortably afford. Living under the constant stress of having a tight budget will impact your happiness and your financial freedom.
Owning a house is also unpredictable! You may face unexpected costs from surprises like broken appliances, plumbing issues, or heating costs. Another consideration is the stability of the job market. Having extra savings can cushion the temporary loss of your salary so that you can still afford to make your mortgage payments.
Talk to your bank, financial advisor, or mortgage broker to figure out what you can comfortably afford, meaning that you have money set aside for unexpected expenses like a new furnace or job loss. Make sure to also factor in the costs of moving, property taxes, and closing costs (like lawyer’s fees), along with a deposit and a down payment.
Next, it’s time to analyze how your budget matches up with what you can afford. If your dream home is out of reach, it might be wise to wait longer and save more, or to buy a starter property that will get you into the market so that in several years you can sell up and buy your dream home.
Getting too emotionally attached in a bidding war
There are times when winning the bidding war matters – and we’ll touch on that in the next section.
But overbidding is another pitfall to avoid. In tight markets where there are multiple bids on houses, getting too emotionally attached to a house could cost you a lot. Overbidding to buy a home can cause you to regret your decision down the road.
At the time, it might seem that no other house will be as perfect as the one you fall in love with, but there are always new properties coming up for sale. If you prepare yourself to hold back when the bidding gets too high or to walk away, you’ll likely make a better investment in the long run.
Talk with your real estate agent and decide how far you’ll bid before the process starts. Get their advice on what is a reasonable price for the property.
Choosing the wrong location
The right house in the wrong location is still the wrong house. Take the time to do research into the location you are targeting. Make sure you consider several aspects like your commute, access to amenities, views, and which neighborhood’s hold better property values. The location you chose will impact your daily living as well as your investment, so spending time envisioning yourself living in a neighborhood is worthwhile. Some of the ways to get a better sense of your desired neighborhood are to:
- Try out your potential commute by driving or transit
- Visit the neighborhood at different times of the day
- Visit gyms, daycares, shops, or other businesses in the area that are important to you
- Read up on news about the area to find out about potential construction, future development plans, is the home in a flood zone, are there CDD fees, etc…
Being overly optimistic about a fixer-upper
Fixer-uppers are not for everyone.
First, you might have to wait to move into the home if you want to have the renovation work done before you live in the space. This could cost you money to rent in the meantime. You’ll need to calculate whether you can afford rent and mortgage payments at the same time as renovation costs.
Second, most renovation projects cost more money and take longer than estimated; it’s not as simple as you see on home shows on TV. You’ll need to be realistic about what you can afford with a fixer-upper, because you may have unexpected expenses in the form of smaller costs, like a new support beam, or daunting costs, like new electrical or plumbing. If you can handle this risk, understand what you are getting into by getting a good home inspection and doing a walk-through with a reliable contractor.
Third, a large renovation project needs to be managed by a qualified contractor. It’s not the type of work the average person can step into. If you’re doing cosmetic fix-ups like painting and switching fixtures, it can be manageable if you’re handy, but larger projects like tearing walls down require permits and expertise.
You don’t want to be stuck having to sell a partially finished house because the project was too large to handle.
Buying a house that doesn’t feel right and hoping you’ll grow to love it
It’s easy to get caught up in a buying frenzy, especially in tight markets where you may have already lost out on bidding wars. The anxiety to “just buy something” can cause people to buy a house that doesn’t really feel right with the hope that they’ll fall in love with it.
Chances are if the house doesn’t feel right at the beginning, it’s not going to be later either.
Having the patience to wait out the market can be tough, but it can also save you from buying a home that you’re not entirely happy with. Most homes have a few things that bother us, even our dream homes. While small things can be overlooked, if there’s just something that doesn’t sit right with you about the property, it’s probably not the house for you.
Remember that buying a home is as much a financial decision as an emotional one
If you prepare your finances and get your budget squared away, you’ll have a much better chance of avoiding major pitfalls while finding your dream home.
With your budget to guide you, acknowledging the emotional side of buying will also help you make more informed decisions about the buying process and your list of potential dream homes.
Be Ready For “Unexpected” Expenses
If you’re buying a new home, you understand there will be expenses related to insurance, closing fees, etc … those are easy to plan for as those are itemized in your closing documents.
However, some other expenses you’ll want to try and plan for beyond the standard closing fees, such as:
- Appliances – Often times the previous owners can play a large role in additional out of pocket expenses. Some owners do not include appliances as part of the sale and will remove them prior to your closing. This unforeseen expense will set you back several thousand dollars. If the seller is taking the appliances, try and negotiate the sale price to help mitigate the out of pocket expense you will be incurring.
- Upgrades – you may be purchasing a home that needs improvements. This may include a new a/c, roof, updated kitchen or bathrooms, etc…. always try and negotiate these out of pocket expenses into the purchase agreement.
- Home Inspection Issues – we cannot stress this enough, ALWAYS hire a home inspector to look through your potential new home with a fine-tooth comb. It will cost you around $400-$600 but it is worth the investment so you can uncover issues that may have been hidden or overlooked by you. This will also provide you with the cover either to back out of a deal if there are significant issues, or the possibility to re-negotiate the price based on issues found.
Items you may not consider until you actually move in which include:
- The placement of the cable outlet. Is it located where you want to place your TV, or will you have to get the cable company to move it?
- Do you have electrical plugs where you need them to be?
- Are you moving into a larger home? Be ready to have higher monthly utility bills.
- Are you moving into a community that has HOA or CDD fees? If so, these are monthly expenses that need to be budgeted for.
Try and Plan Ahead
This is definitely easier said than done, however, you will need to do your homework. The best way to limit your financial exposure is to research, have a checklist or requirements, and plan for the unexpected.
If your shopping for homes within a specific budget, especially older homes have a contingency budget calculated based on things that you want to accomplish after closing. For example, you may want to completely remodel the kitchen. Research costs for new floors, cabinets, countertops, appliances, get estimates from contractors. This will at least give you a ballpark of what it may cost.
The last thing you want to do is move in, and then find out the remodel you thought may cost $10,000 will actually cost $25,000. (We’ve heard horror stories.)
Also, don’t simply choose “cheap” because you may pay for it later. The home in question may be the cheapest because the plumbing, roof, HVAC, and any number of other issues may need to be replaced. These expenses may be much more expensive in the long run. Insurance payments may be higher based on the age and history of the home, as well.
In a bidding war? Six tactics to win
Let’s say you find the perfect home. It checks the boxes, it’s well within budget, and you’re not at risk of going over even with additional expenses coming your way.
This. Is. The. One.
Here’s some ways to win that bidding war:
Submit a Larger Offer
Sounds simple, right? Be willing to go over list price if necessary – but your realtor can guide you on how far to go.
This is the first piece of information the seller will examine when looking over offers, so consider this your first impression. But it’s not the only part of the puzzle.
Provide Proof of Funds
This is almost a must-have. You can make as high an offer as you want, but it won’t matter to the seller unless you can secure a loan for that amount.
When it comes to choosing between two offers, most sellers will prefer the safe bet – even if they’re turning down a slightly larger offer – by selecting the buyer with the mortgage pre-approval.
If you’re paying cash, be prepared to provide proof that you have the funds to cover the amount of the sales price. This proof could be your bank statement, retirement account, or investment funds.
Offer A Larger Earnest Money Deposit
Earnest money (or “good faith”) deposit is the money you will need to provide once your offer is accepted. It will be credited back to you at closing, but it is retained by the seller if you breach the contract.
It shows you’re a serious buyer, and a higher deposit offer indicates a strong desire to buy the home + proves you have more cash on hand now. If the seller has to choose between more than one offer, they will consider the amount of your earnest money deposit.
Remove Contingencies from Your Offer
Contingencies refer to the conditions that must be met to close the sale of the property. If the conditions aren’t satisfied, the buyer can cancel their offer without losing any money. A common example is when a buyer is also trying to sell their house – they may have a contingency stating they won’t buy unless their previous home sells.
You can waive certain contingencies to make your offer look more appealing. For example, you could waive the financing contingency, which states that you’ll only purchase the property if you can secure the loan.
Add an Escalation Clause
If you have the funds, consider adding an escalation clause. This states that you’re willing to go up by a specified increment up to a cap amount if another bidder matches or is higher than your initial offer.
Adding such a clause helps you from overpaying, but gives you the chance to beat out other offers and stay ahead.
Know What Else Is Important to the Seller
Have your agent talk to the listing agent, or to the seller if it’s a For Sale By Owner, to find out what besides price is appealing to the seller.
- Do they want to close as soon as possible or prefer a few months to find their new home?
- Are they good with providing possession at closing or need a few days to move out, or do they need to rent the property back for a month?
- Have they sold a home before?
There are some elements to the contract besides price that can be appealing to the seller and may tip the scales in your favor, even if your offer isn’t the highest price. It’s a negotiation with human beings just like you, after all!
Buying a home in a seller’s market
If you are looking for a home in a seller’s market, you are the one who may be forced to compromise. Here’s a few tips:
Don’t avoid an inspection. Some offers might remove the need for a home inspection entirely, but we strongly caution against this. You need to know what you’re buying, and the inspection is crucial to help you understand what’s inside and out – or to avoid making a major mistake.
Put your best foot forward. Expect to compete with other offers, so put your best foot forward with yours. You won’t get another chance to be in the conversation.
Stick to your budget. Noticing a theme in this buyer’s guide? 🙂 You have a budget for a reason, and if a home gets too expensive for yours, don’t make changes! You should own your house – not the other way around.
Hire the right agent. Seems simple, but every agent works a bit differently. We recommend interviewing multiple agents before working with one to understand their philosophies and how they might work with you.
Ready to buy your dream home?
This isn’t a short read, so congratulations on making it all the way through! (Or, maybe you scrolled to the bottom – that’s okay, our agents can give you a tl;dr version)
Whether it’s an area such as North Augusta or Aiken in South Carolina, Grovetown, Martinez, or Evans in Georgia, or Fernandina Beach, Orlando, or Yulee in Florida.