It is official! We are building our forever home, and couldn’t be anymore excited! Never in a million years did I think since moving down to Dallas that we would have moved from my sister’s home, to an apartment, bought a home, selling that one, and to now finally build a home. To conclude this money series I decided to dedicate it to all of the things I wish I had known about buying a home.
I will cover financial tips for buying a home and more, keep reading along!
Let me start with… Never did we plan to move into our house and then almost 3 years later decide to move again. Once we got into our neighborhood and home, we realized there were aspects of both that were lacking. And we wanted more from our home. We prayed about this for a while, and finally made the decision to build and get a home that checks all of our boxes.
Another reason we didn’t wait longer is because we knew this was something we were going to do, and we have an older child (Cam that is 11) who is going into middle school, switching school during that time would not be in his best interest. Cam already had multiple moves and we just want to give him the least amount of disruption as possible. If we only had children that were 5 and under we probably would have stayed in our 1st home a bit longer.
Middle school is a tough time and the last thing I want to do is cause any more stress because we switched after 7th grade. Let me also say that I am not knocking anyone that has to move during that time period. We are moving to upgrade, not out of necessity. THANKFULLY, we are seriously moving down the street, same school district, and about 5 minutes away from our current home. This was by choice. There was only 1 neighborhood we were interested in and if we didn’t move there then we would have just stayed in our home.
Our son will be zoned to a different middle school that is not going to have his elementary school friends, but I think he will be good since everyone will be new. Plus some of the kids he played sports with I believe go there. Anyways speaking about Cam’s school it is not the purpose of this post. HAHA!
The amount of money you will have to pay will vary vastly based on new/pre-owned home and price. We have now gone through buying a home that was already built and now new construction. And let me tell ya neither is cheap! Let me break down some of the costs to anticipate for.
New Construction – Earnest money will have to be paid (that is basically a deposit), this will vary by builder and the price of your home. We always ask from the moment we step into the model home.
Most builders you will have to pay a design center deposit if you go above their design center credit. Basically what this means is a builder will likely give you some money to spend at the design center. If the options that you want go above that be expected to pay a deposit towards that. Our builder requires 50% of anything above our design credit. This can add up so be mindful, and consider doing some upgrades later after you move in. BOTH earnest and the design center deposit will go towards your down payment. SO keep that in mind. You really aren’t coming out more money it is just an earlier specified time. I know for me when I used to think we just brought our down payment to the closing table and that is not the case.
Lastly, our particular builder requires another percentage of earnest money once the home gets to dry wall. This will also go towards our down payment.
Closing costs and title will be another expense to consider. Keep in mind sometimes if you are building if you go with the builders lender they may pay a portion of that.
Down payment – You of course will have a down payment that is due at the time of closing. This will vary on the type of loans you go with, the percentage you plan to put down, and cost of the home.
Pre Owned Home – You will have a down payment at time of closing, along with closing cost and title fees. I also recommend paying to get the home appraised to ensure you are buying a great home. Along with pay to have an option period. We paid to have an option period that basically allows you to get out of the home if you no longer want to move forward or find something wrong with it. Guys if this is available to you PLEASE DO IT! Rick and I got under contract before buying our 1st home and we terminated the contract once we found out it had foundation issues. It is extra cost but worth it. These are the only cost we incurred, but suggest doing your research to ensure nothing additional.
Being a home owner you will have things you will have to pay. Without a doubt. You don’t want to just be buying a home because you barely were able to come up with the money. You really don’t. You never know what curve ball life can put you on, and you want to be financially prepared. The last thing you want is to be paying your mortgage late! I would strongly recommend having a cushion before getting into your mortgage. Dave Ramsey recommends 3-6 months of monthly expenses in the bank before getting into a mortgage. Y’all…if that delays when you can buy a home slightly, so be it! Things will come up and having a safety net to protect you from the unexpected will alleviate going into a stressful time period.
The biggest mistake we made from our first house and a major reason we are moving is because we did not do our research. You want to know as much as possible about the home, builder, resale value, neighborhood, and what is coming around your neighborhood. Honestly, Rick and I were just so happy to be getting a house we basically were just like where do we sign. BIG MISTAKE! We should have been hanging out in the neighborhood, look at the gripes of the neighborhood in their Facebook group, and learning what is coming around the neighborhood. What we learned is that our neighborhood is going to have a lot of things built around us that we may not love.
We also bought this home as a certain builder name. It was the upgraded level for the builder. AFTER we bought the home the neighborhood took out that upgraded name and put only built the lower tier homes in our neighborhood. I was so mad! Not because of them doing this but we paid an upgraded price. We felt bamboozled. Another gripe for us is the developer of the neighborhood doesn’t put a lot of energy in keeping up the aesthetic of the neighborhood and amenities. If we are paying our HOA fees this should be a must. Before we got under contract in the community we are moving to we spent time driving and walking around. Talked to people in the neighborhood. Talked to realtors. We also educated ourselves on the builders, we took our time to learn which builder was best for us. We asked if they could provide the future plans for the neighborhood and the surroundings. We wanted to feel comfortable with our investment.
I won’t spend a lot of time here because I am not a mortgage banker. However, Rick once was. Y’all if I didn’t have a husband that did this for a living I would have been somewhat lost. So if this is you, don’t feel bad just get educated. Even with my husband once being in the mortgage industry I still took to Youtube to learn the differences of home loans, I googled home loans. In a nutshell the most common ones are FHA, Conventional, Jumbo, or VA (if you served in the military) loan. Each of these home loans will have different credit, financial, and down payment requirements. Remember when you got to come out of money, you want to learn which one is best for your financial situation. Take the time to educate yourself!
This will depend greatly on the your income and debt. Banks have a certain debt to income ratio they factor to decide how much home you can get. I would suggest connecting with a bank/or mortgage company to assist you with that. BUT WAIT! Before you just call the first mortgage company you find on the internet. Also do research on them as well! You want to consider who would be the best company to go through this intense process with. Plus you want to look at who can get you the best possible rates. Please note – Mortgage companies will try to pull your credit, which at one point this will be required. However, if you are not interested in moving forward with that company don’t have them pull credit. This will count as an inquiry on your credit report. You don’t need to be getting inquiries all willy nilly unless you have to. Simply talk to them about your financial situation first, get a vibe from them. Lastly, if you aren’t planning on getting moving forward on buying a home any time soon I probably wouldn’t have them pull credit either. Shop around with mortgage companies to make sure you make the best decision.
If you want to move forward with that mortgage company have them pull credit and look over your financial situation. At that point if you have the required credit score they will tell you based on your income and debt what you are pre-approved for. They will likely give you a pre-approval letter. You basically share that with your realtor or builder. This is very helpful for you because it allows you to know exactly what type of home to look for. Guys just because they approve you for a certain amount DOES NOT mean you have to use all of it. You want to judge it based on the monthly budget you have established. Dave Ramsey recommends having your mortgage be no more than 25% of your take home pay. I definitely recommend starting with a pre-approval letter so you can accurately shop for a home.
It definitely is! There are credit requirements to obtain a home loan it will vary with the home loan you go with. Get educated on these requirements if you’ve had blemished credit! Another reason it is important is your credit dictates your interest rate. The better your credit it is the lower interest rate you can get. With that, in addition to building your safety net savings, you will also want to go into home buying with the best credit you can possibly have. Why pay more in interest when you can just wait a bit and improve your credit? What I had to realize is I had to be patient in order to get the best home financially for us. Once you get under contract with your home you do not want to do any large purchases or anything that may negatively impact your credit report. You should have a freeze on everything.
We delayed the process until we could get our finances in order and that is I don’t regret that the slightest! Additionally, having any type of blemishes on your credit report only make it that much more complicated during the underwriting process. The underwriters go through your credit with a fine tooth comb. If you have open disputes those have to show closed, if you have items in collections those have to be paid or provide explanation. Don’t make your underwriting more stressful than what is needs to be. Don’t rush, repair your credit.
Your realtor will be a great resource to learn about the community. Plus having a great realtor is having an advocate throughout this process. They will fight for you and negotiate with you. Major tip**If you are doing new construction consider seeing if the builder has some contacts. If you have a realtor that constantly works with the builder they may have a good relationship with them and may have more negotiating power. They could get you a better deal than maybe other realtors could. Do your research. If not doing a new build see if you have friends/family that have a strong referral. It’s especially important when you are selling/buying. Our realtors have been great when it was time to list our home they came in and moved our furniture and decor around that would be aesthetically pleasing. They didn’t have to do this but they are passionate about selling our home which I appreciate it.
This is important for new construction. Builders offer incentive most times towards your home. Incentives are like free dollars to go to your home. Examples of incentives – $10,000 toward outdoor living upgrades, $20,000 towards design center. As I mentioned there could be incentives if you go with their lender. Make one of your first questions, what are your incentive you are currently running. Don’t leave this free money on the table!
When you go into buying a home you want to be in that home for some years. With that it is important to make a list of all the things you would like to have in a home. Rank them from most important to not important. Use this as a guide when you are looking for a house. If this is not your forever home, think about what could make you happy and fit your needs for the next 5 years. Before getting under contract for our forever home I did this, and wish I would have for our first home. Again, we were just happy to have a house honestly. Here are a few things that were on our list after living in our current home. More than 2 garages (with storage we barely can fit our cars in), at least 5 bedrooms (we have a big family), neighborhood with amenities, large master bedroom, wood floors throughout, 2 offices, more outdoor living space, larger media room. Those are just a few of the things on our list. If you are married sit down with your spouse so you both have input. You don’t want to end up like us moving after 2 years of living in the home.
Can the home buying process be stressful? Of course. However, don’t allow that to rain on this life event. I think it is important to go into this process with the mindset of knowing it will kick your butt a little bit. That’s ok. You will get curve balls thrown at you. Be mentally ready for it. I think the more that I learned that the more I was mentally ready for the unexpected. Buying a house is huge accomplishment that you don’t want to take for granted. Let me also speak to let’s say you are not in a spot whether from your credit or financial income to buy a house. THAT IS OK! We weren’t at one point. Use that as a motivator to set goals, and make a plan to get to where you want to be. It’s not a NO, simply a NOT YET! Stay encouraged whether you are going through the buying process or repairing finances.