7 Tips for Buying a Home

Buying a home can be challenging: a nice word for stressful, time-consuming, mystifying and sometimes even heart-breaking. Not to mention, it’s going to involve a whole lot of money.

Here are a few handy tips to make a challenging process a little easier.

1. Are you ready for the plunge?

You’re making perhaps the biggest purchase of your life, so be sure you’ve thought it through.

Do you have good credit? Do you have the standard 20 percent down payment (there are loans for those that don’t)? Prepared for the “sleeper costs” of a home ownership: property taxes, home insurance, HOA dues and maintenance costs? Tallied your must-haves vs. your like-to-haves? Is the neighborhood right? Are the schools right? Is the kitchen tile right? Committed to staying put for a few years?

With the transaction costs of buying a home, you may end up wasting money if you sell sooner, and renting may be the better choice.

There are a variety of rules of thumb on how much home you can afford. But there are even more online calculators that can tell you how your income, debt and expenses affect what you can take on. Use them.

If you’re taking out a Federal Housing Administration-insured loan, your total home payment can’t exceed 31 percent of your gross monthly income. For conventional loans, a safe formula is don’t exceed 28 percent.

2. Don’t try to time the market

Real estate is cyclical, and those market vicissitudes can’t be predicted. If you try to find the perfect time to buy, you might miss out on the perfect home. The ideal time to buy a home is when your desire to do so, the need to do so and your ability to do so are aligned.

3. Pre-approval means preparedness — and an education on closing costs

If you’re a serious home shopper, get pre-approved for a loan. Pre-approval tells you how much you can afford and allows you to be taken seriously by sellers. Hopefully it also means you’ve shopped around for the best deal and interest rates.

If you’ve done your research, you’ll know a lot more about what to expect at closing — namely, a whole litany of fees demanded by lenders, attorneys, insurance and local government that typically add up to 2 to 5 percent of the home’s purchase price. These include appraisal, title insurance, title search, recording, underwriting, attorney, escrow deposit, loan origination, discount points and more. Some fees you can try haggling over — it’s worth a shot.

4. Get professional help

Despite the cost of a real estate agent (the commission rate is generally 5 percent or 6 percent of the sales price) and the fact that you can browse listings online, most buyers are still better off using a professional agent.

“A good agent’s network of relationships can be the deal-maker for a buyer,” says Shelly Bearden, a broker with Nashville’s Worth Properties. “A good agent can find homes that aren’t yet on the market and has numerous resources — electricians, plumbers, contractors, environmentalists — one call away when they’re needed. Inventory and timeliness are critical to successful home-buying.”

5. Do your homework before bidding

Your opening bid should be an educated one, based on what similar homes in the neighborhood —“comps,” short for comparables, in real estate lingo — have sold for in the past three months on a price per square foot basis. If the homes have been selling for 7 percent below asking price on average, then your first offer should be at least that much below the asking price.

6. Inspect what you’re buying

You’re about to spend a whole lot of money on a home — you should know exactly what you’re getting. The only way to get an unbiased and professional opinion is to hire a home inspector. He or she will closely examine the home and point out damage and problems that could cost you big down the road.

The information could change your mind on the home or provide additional leverage as you negotiate the price. The couple hundred dollars is well worth it.

7. You’re a proud homeowner — now what?

Home ownership is rife with surprises, and seemingly never of the inexpensive variety. Roofs to replace, HVAC systems to repair, unexpected weather damage to mitigate. It’s a good idea to start or enlarge an emergency fund for your new home.

To stay ahead of those problems and protect your investment, be sure to perform regular maintenance.

And finally, resist the temptation to believe your new home is the goose that lays the golden eggs for retirement. Many people, if they stay in a home long enough, will see its value grow. But as the housing bubble so vividly demonstrated, not everyone makes a killing on their home. Continue to save as much as you can for retirement, taking full advantage of 401(k)s, IRAs and other investment instruments.

Phoebe Venable, chartered financial analyst, is President & COO of CapWealth Advisors LLC. Her column on women, families and building wealth appears each Saturday in The Tennessean.