Thank you to Dave Ramsey’s ELP Program for sponsoring this post!
As many of you know I’ve been working in the real estate industry for the past 16 years. It’s been quite a journey with plenty of highs and lows, especially over these past years with the extreme housing boom of the early 2000s to the downturn that started in 2008.
Luckily things have now turned for the better and the market is back in full swing. New home construction is climbing again and resale homes are selling in record time in some areas of the US. Now really is the time to buy a new home.
Last year I shared with you guys my 15 Tips for Selling Your Home, but now I’m sharing some of my favorite tips for BUYING a new home.
1. Find the Right Realtor.
Buyers who use a buyer’s agent pay an average of 5% less than buyers who don’t, a difference of $7,500 on a $150,000 house (according to Dave Ramsey’s ELP Homebuyer’s Guide). And the best part? A buyer’s agent will cost you NOTHING. The seller of the home must pay for your agent’s commission. Even if you think you can purchase without an agent to get a lower price, a buyer’s agent can help you negotiate the best price and is working for YOU, not the seller.
2. Location. Location. Location.
I’ve always heard the saying “There are three rules in real estate: location, location, location” and trust me, this could not be more true! The location of your new home will factor into your school district, taxes, utilities, and resale value of your home down the road. Is the new home close to your work? Will you spend more in gas driving back into town? Will your kids have to switch schools? Are the home more expensive in this part of town? Oftentimes choosing the location first can help you narrow down your new home search.
3. Strengthen Your Credit Score.
Check your credit score and make sure there are no discrepancies in your findings. If you do find something, address the issues with the credit agencies so you can move forward with securing a loan. When we purchased our last house we found that we had a mark on our credit saying that we hadn’t paid the mortgage on our home in June and July. The only problem? We CLOSED on that last house in May! Yep, somehow the payoff of our loan got lost in the shuffle when the mortgage company switched names. The issue only took a few days to fix, but it was lucky that we caught it early when reviewing our credit score.
Need help getting your credit score back on track?
Check out How We Paid Off $20,000 in Credit Card Debt!
4. Decide How Much You Can Afford.
You might make $250,000 a year but that doesn’t necessarily mean that you should purchase a $1,000,000 home. Or maybe you only make $30,000 but want to buy a huge 2,500 square foot home for your growing family. THINK BEFORE YOU BUY.
Think about mouths to feed, car payments, college tuition, retirement, savings, etc. Think about not becoming “house poor” and having to use your credit cards or living paycheck to paycheck.
Also think about what makes YOU feel comfortable. Maybe you like to travel? Or have three daughters and would someday love to pay for their weddings? Don’t just buy a big house because you can or want, simple as that. Stay conservative and look for homes in a price range that will keep your mortgage payments to about 25% or less of your take-home pay for a 15-year note. If you’re looking for a little bit of guidance, check out Dave Ramsey’s Home Affordability Quiz.
5. Down Payment and Closing Costs.
With some programs you have the option to pay anywhere from zero money down (like a USDA loan), 3.5% down, 5% down, 20% down and more. If at all possible, save for a 20% down payment. Trust me, this will put you in the best financial position for your future and keep you from paying any private mortgage insurance (PMI).
Closing costs are typically 3-7% of the price of your home and include loan origination fees, title insurance, appraisal fees, etc. Sometimes you will be lucky enough to roll some these costs into the purchase price of your new home or have the seller pay towards some of the fees, but do NOT depend on this. Instead save up the money before you’re ready to purchase. Then if those funds are not needed when you close, at least you’ll have a nice little nest egg!
6. Find a Good Lender.
Don’t be scared to shop around for lenders! Your brother might be a mortgage loan officer in a local bank but guess what? You don’t have to use them if they aren’t going to save you money! Remember you will be paying this loan amount for the next 15-30 years. Do NOT use a friend because you feel you owe him a favor. This is your life, your money, your future. Make sure your lender can explain things in easy terms and are easy to talk to. Again, just shop around to make the best decision for your family.
7. Get a Pre-Approval Letter.
I would actually recommend finding a good lender before you’re even ready to shop for a new home. Why? Because you want to be able to walk through that home with a pre-approval letter in your hand. If you were to fall in love with that home and a bidding war ensued, the person with a pre-approval letter might get the deal because they’re not finance contingent.
Another great reason to have a pre-approval letter? It will narrow down your search for how much home you can afford.
8. Pick a Mortgage Option.
When talking with your lender, make sure you discuss all of the mortgage options. How much down payment you’ll put down. 15 year loan vs. 30 year loan. Fixed mortgage rates vs. adjustable mortgage rates. FHA, VA, USDA, private mortgage insurance… yeah, there’s a lot to learn. Lean on someone in the industry to help you pick what’s best for you.
9. Experiment with a Mortgage Calculator.
You usually hear about a 30 year conventional loan but more families these days are considering the 15 year loan. Why is that? The amount of money you can save over those 15 extra years! The difference between a 15- and 30- year mortgage with a 4.5% interest rate on a $225,000 home is $101,000 over the life of the loan. What could you do with $101,000? A lot I’m assuming. And just think if you invested that money! For more help on this, check out Dave Ramsey’s mortgage calculator HERE.
10. Don’t Make Major Purchases.
I cannot stress this one enough! It’s unbelievable how many people try to buy a new car or engagement ring or even a boat right before they close on a home. Yeah… not too smart. The home mortgage loan you are applying for is not 100% guaranteed until the day you close. Try not to use your credit cards and definitely don’t take out any other loans. Now is the time to SAVE!
11. Move Fast.
Ok, so now you’re looking for a new home. You’ve found one online that you think you like and would like to tour. SCHEDULE YOUR TOUR NOW with your real estate agent. Seriously, don’t wait. I’ve heard of so many friends that thought they could wait until the weekend to tour a home they liked and guess what? It was under contract by the weekend.
Or take our last home for example: we had three families walk through our home that morning and all 3 put in an offer… all before 11am! We even had a bidding war and got more than asking price. Crazy, yes… but it does happen! Just make sure you’re ready to move fast to tour a home that you see online or that your agent suggests to you, then be ready to put in an offer if you love it.
Why do you need to take a real estate agent with you on these home tours? Because they have no emotion tied to the house. They know exactly what you should be looking for when you’re touring the home and can point out things you might not see (or want to see!). Dave Ramsey’s Endorsed Local Providers are real estate agents with years of experience helping people buy homes. They take that experience to the negotiating table, and make sure you get the best bang for your buck!
12. Do Your Research on the Home.
If you like a certain part of town or neighborhood, do your research on listing prices and what they actually sold for. Your buyer’s agent should be able to print you out a recent listing from the MLS that show all of this data, plus how many days surrounding homes normally stay on the market. Make sure you take into account: location, the current market, condition of the home, neighborhood, and the age of the home.
13. Negotiate Your Price.
If you do notice that a home you’re looking at is over priced or has been on the market for awhile, don’t be afraid to negotiate! And this isn’t only for resale home. Yes, it can work with home builders too, especially towards the end of the month when the builder is trying to unload inventory or hit their budget. Remember you can ask for money off the price of the home, the buyer to cover some closing costs, and inspection fees.
14. Understand the HOA.
Make sure you get all information about the neighborhood before you purchase. One of the biggest surprises to most home buyer’s is the homeowner’s association (HOA) fees. This can be anywhere from a couple hundred to a few thousand dollars a year depending on the community and amenities. Also ask about the neighborhood’s rules, regulations, and bylaws for information on fences, irrigation systems, common ground, landscaping, etc.
15. Get a Home Inspection.
And finally, please make sure you get a home inspection! Inspectors examine the home’s condition and look for problems you may not have noticed such as a leaky roof, electrical wiring not up to code, termite infestation, etc. Think of it as peace of mind on probably the largest purchase of your life!
So there you go…
the 15 best tips I can give you when trying to buy a new home.
For more tips and information,
you can download a PDF of the Dave Ramsey Home Buyer Buying Guide.
OK, now spill it…
What’s YOUR best home buying advice?
If you have a home to sell as well,
make sure you check out my 15 Best Tips for Selling Your Home.
This post was sponsored by Dave Ramsey’s Endorsed Local Provider program,
but all opinions are my own!
Chelsea says
Thanks so much for these tips! We’re currently working on paying off all of my husband’s student loans before we buy a bigger house. I’m definitely pinning this post for later!
howtonestforless says
SO SMART!! Keep up the good work and you’ll be moving in no time. Good luck!!
Megan says
Thank you so much for this post! Just what I needed to read. My husband and I are looking to buy soon, thanks for the tips!
howtonestforless says
You’re welcome! Hope it helps. Good luck!!
Ashley Turns says
I appreciate your suggestion to do some research on the neighborhood and real estate listings you are considering so that you can find out things like average prices and how old the home is. My husband and I are in need of a larger piece of property since our family is growing quite fast. We will definitely make sure that we do some background research on the house we are considering so that we can be prepared.
Michael says
I appreciate you mentioning the importance of finding the right realtor when buying a home. Just like you taught, buyers who use an agent usually spend around 5% less on their home. Being newlyweds, my wife and I want to save as much money as we can when we purchase our home, so it might be wise for us to get a realtor. Thanks again!
Tilesbay says
Very useful, thanks so much for these tips!
Julius Amberfield says
It sure was nice how you said that the location of the home that we will choose will have a huge impact on my work and the children’s studying, so it’d best to look for a home that’s near to necessary locations so as to narrow down the search. The location was the first thing that my mom told me when I said that I wanted to buy a house, and now I know what she means. I will be sure to research the areas that are close to school districts and other important establishments. Thank you for the tips!
Ria Amelia Lawrence says
I do appreciate your suggestion of getting the home inspected in order to determine the potential problems in the house that the person might otherwise miss. This is something that I will be sure to mention to my sister since she is planning to get herself a new house soon. Since she knows nothing about inspecting a home, she ought to hire one who can. Thank you for sharing this.
Watson Williams says
I appreciate how you suggested taking the time to get a pre-approval letter from a lender before getting serious about a home. I’d like to move into a home this year, but it would be my first home. I’ll definitely look into getting pre-approved to help ensure I’m ready once I come across a home I love.
Ridley Fitzgerald says
Thanks for the tips for buying a new house. My wife and I really want a new home for our growing family, so this is great. I’ll be sure to take your advice and find a buyer’s agent, especially if it won’t cost me a thing!
Shayla Cademis says
Thanks for your recommendation to schedule a home tour as soon as possible instead of waiting. My husband and I recently decided to start looking into buying a new home, and we talked about touring as many homes as possible to make sure we love the one we end up with. I hope we can find a great real estate agent who can help us navigate this competitive market!
Mia Stewart says
I like how the article explains that when you are getting ready to buy a home, you should make sure to not make any major purchases, such as an engagement ring or a car, to make sure you can get a mortgage loan. My husband and I are wanting to buy a new home as we get ready to start a new family and we were thinking about getting a new car but we will make sure to not get one until after we get our home mortgage loan. Thank you for the tips on buying a new home.
Joquim says
Interesting tips! Could not agree with more! Nothing teaches you more than doing a thing for the first time & from experience I would always suggest that one should have enough money to pay for the down-payment & a good debt to earning ratio to pay for the monthly instalments, that is the first and most important step while investing in a home.
Derek McDoogle says
I did not know the fact that buyers who use a buyer’s agent pay an average of 5% less than buyers who don’t. My brother is planning to buy a new house so it might be a good idea to hire a realtor to help him out with this process. Thanks for the information about how choosing the location first can help you narrow down your new home search.
Carly Mckeen says
Thank you for stating that you should take into consideration the location when buying a house. My husband and I want to buy our very first home but have no idea how to go about it. I will definitely utilize all of your great tips and information when trying to buy a house.
Derek McDoogle says
I found it interesting when you said to check your credit score and make sure there are no discrepancies in your findings. My brother got married last month and now he is ready to buy a new house. I will let him know to search for a realtor to help him save some money as you said.
Mia Stewart says
I like how the article explains that if you see a house you might like, make sure that you act fast and get a tour as soon as you can or the house could sell. My husband and I are starting to look for a new home and we want to make sure that we see all the houses we might be interested in. We will make sure that we schedule a tour right away if we see a home we like.
Jay Jorgenson says
My friend is searching for a home for him and his family. I like how you mention if there is a home you want and is overpriced or has been on the market for a while, don’t be afraid to negotiate. Thank you for the advice. I’ll share this information with my friend so he can buy a home quicker.
Derek McDoogle says
I did not know that when buying a house closing costs are typically 3-7% of the price of your home and include loan origination fees. My sister wants to move closer to my mom’s house and she would like to buy a house. I ill definitely share this article with her so she is aware of the basic steps to purchase a house.
Laurel Larsen says
I like your tip to not make any big purchases right before trying to close on a home. My boyfriend wants to get a place together and we’ve also been talking about getting married. I’ll let him know he’d better not buy a ring during the buying process or else his credit might take a hit!
Ellie Davis says
I liked that you mentioned you need to consider your credit score before making the decision to buy a house. My mother is thinking about buying a house, and we are looking for advice. I will let her know to check her credit score before start looking for houses.
Eli Richardson says
I really liked what you suggested to get information about the neighborhood before buying the house. My wife and I have been thinking about purchasing our first home. We will find an estate agent that knows the place better so we can make the purchase.
Jay Jorgenson says
My sister is having a hard time searching for a new home. I like how you mention that a realtor agent can help you negotiate the best price that benefits you. Thank you for the information. I’ll recommend my sister to hire a real estate agent to help her through the process.
Sophia Slate says
Thank you for stating that you should make sure you discuss all of the mortgage options when talking with your lender. My husband have decided that we are ready to start a family, and want to buy our first house. I will definitely utilize all of your great tips and information when buying my first home.
Sabrina Addams says
Wow, it’s amazing that people who use a buyer’s agent averagely pay 5% less than those who don’t and that they can negotiate the price for you. My mother-in-law is wanting to move out of the house she’s lived in for the past 34 years. It sounds like finding a realtor in Westerly, RI could really benefit her.
Derek McDoogle says
It’s interesting that you mentioned the importance of setting up a budget when thinking about buying a new house. My wife and I have been saving money to buy a property so that we stop paying rent. I will share this article with her so she can have a better idea of what we need to focus on when starting the process of buying the house.