If you are a potential first-time home buyer, it’s only reasonable that you’d rather dip your toe in the water to test the temperature before diving in. The fact of the matter is that in addition to being a highly emotional point in your life (assuming you’re like most people, and feel that owning a house is the true litmus test for being “successful”), buying a house is incredibly complicated to do right; right in this context means with as few pitfalls as possible. This article will briefly discuss a few pieces of advice to help the would-be housing newbie dive in with a little more confidence.
How Much Can I Afford?
You’ve decided it's time to buy your first house, you checked your bank account, investment portfolio, and let’s assume your family-members are eager to help as well – what do those dollars and cents translate to in terms of a house you can afford? Unless you come from money, you won’t be able to buy that first home with cash, so you will need a loan; houses are pretty dang expensive.
As a general rule, your house payment (consisting of maintenance, taxes, and mortgage payments) should be less than 28% of your income, 25% if you want to play it safe. As an example, you’re doing pretty well for yourself making $100,000 per year. Under this rubric, your total housing payment should not be more than $28,000 per year (a little over $2,600 per month). Online calculators will provide you a general idea of what you can afford, but if you want a definitive answer, contact a lender for a mortgage pre-approval.
In obtaining a pre-approval, the lender will comb through your financial records to determine if you qualify for a loan, and what dollar amount to approve on that loan. Getting pre-approved is always a good idea, as sellers feel far more comfortable going through the sale process with someone they know is good for the money (sellers typically shy away from “if you get me a hamburger today I will gladly pay you Tuesday” situations).
Another option is to pursue a loan through the Federal Housing Administration (“FHA”), this is a great option for first time home buyers; the requirements for approval are far less stringent and requires a credit score of 500 of more (your credit score is probably over 500 if you’re in a financial position to buy a house).
Be Realistic, Nothing is Perfect
As noted above, buying your first home is an emotional time in your life; this house is proof positive that you finally made it. As such, it’s natural to want that first home to be perfect in every sense of the word. However, these are inanimate objects that have withstood weather, natural disasters, and even more damaging disasters like having people live in them; all houses have scars. As such, it’s important to realize you will have to make a concession here and there, and more than a few compromises.
Most buyers focus on three things: (1) the size of the house, (2) the location of the house in relation to points of interest for the particular buyer (school, work, hospital, etc.), and (3) price. If we are being perfectly forth-coming, getting 2 out of 3 is a slam dunk – that’s probably the most perfect house you can find.
Don’t Forget This is a Contract, Once it Becomes Binding You’re Bound – Give Yourself an Escape Route
We have all had that experience, we found the perfect (insert item), and we need it now; don’t do that with a house. Add some contingencies into the agreement, it’s a negotiation after all. A contingency gives you a way out from the contract if the seller doesn’t make good on their obligations. The most common contingency is a home inspection – “I will buy your house after I have inspected it, noted things that must be repaired, and you make those repairs.” You might think this is implied in the sale, but contracts (like most things legal) are a completely different beast.
Since you are a first-time buyer, it’s also a good idea to throw in a financing contingency, this allows you to escape the contract if you aren’t approved for a loan. While a pre-approval is a pretty good indicator of your financial well-being, it is far from a guarantee that they will approve your loan. Without this contingency, it’s entirely possible that you will be on the hook for the full price of the home, despite your limited assets; you don’t want that, and neither do we.
Another smart contingency to include is an appraisal contingency. This creates an escape hatch in the event that a professional appraiser values the property as less than what you offered, they will only loan you an amount sufficient to meet the appraised value, i.e., you’ll have to cover the difference. Thus, the appraisal contingency is a good idea if you don’t want to be forced to dig deep into your coffers to make the sale happen.
“Real” Real Estate Agents Are Rare, Find the Best
As noted above, buying a house is a complicated process; you need to transfer a deed, search the property’s title, and a metric [expletive] ton of paperwork – it’s not something you can just Google or watch a Youtube video on (though we are sure there are both on the internet – but if you play stupid games, you will always win stupid prizes… and you didn’t make it to the point that you are able to buy a house by being stupid). As if that weren’t enough, you’re probably not an expert on the various systems of the house, experienced real estate agents have seen it all before, and know what to look for. Finally, considering the amount of money you are investing, and the fact that you are about to enter into a binding contract for that money, why would you risk cutting corners? This is where we come in.
If you are looking to buy in Sherman Oaks, Studio City, or Encino, the Chernov Team is the top team, we have a higher volume of purchases and sales than anyone else. This means we are familiar with the area, the houses, and the pros and cons of each pocket within these cities. When it comes to houses in these areas, there is nobody better.
At the Chernov Team we understand that whoever comes to the table most prepared leaves with the most, and the Chernov Team always leaves the table with the most.