First Time Homebuyers / Considerations
This webpage discusses some of the more subtle and not so subtle nuances of first time home buying.
It is recommended, that two other webpages within this site, be referenced in conjunction with this one.
There will be some duplication of thoughts and ideas, however, each webpage identifies specific issues, concerns and observations that I have developed through over 40 years of contracting, home purchasing and consulting.
These other webpages are;
In addition to the information within these previous webpages, I add the following comments that may increase your knowledge, foresight and ability to purchase that first home. It is essential that you have the necessary information and understanding of the real estate marketplace, to better enable you to make proper decisions, and hopefully purchase a successful first time property.
- Longevity / Although this is an exciting time, as a first time buyer, this will probably not be your home forever nor your last purchase of a home. This is an important insight, which is difficult to accept, when you are looking for your first home. Statistics will show that most individuals or couples first home is far from the last home they will own. The knowledge gained, once your first home is purchased, will in many cases, instill ambitious thinking and stimulate expansion, relocation or the need to move up, etc. All of these situations will cause you to either look for another home, or revise the home that you considered perfect, when purchasing it, as your first home.
Developing life situations will most likely cause owners of their first home, to either reconsider due to job relocation, family growth, increase or reduction of financial ability, or any other life occurrence that develops. Each separate occurrence, may influence the need for a change of venue from your first home.
Your first home, will probably not be your last home, this is an important insight that should be acknowledged as you search for that first house.
- Resale / Based upon our first comment regarding longevity in the home, the need to resell your home will, in most cases occur. Whatever characteristics that you found as positive, will remain as positive selling points for your home. More importantly, any negative issues or characteristics that you may have discussed and decided to overlook, will be your stumbling blocks as you place your home up for sale. Home buyers are normally very predictable and consistent. If you had difficulties with some qualities of the home, it is very predictable that others will have the same negative reactions. This is an important aspect of purchasing your first home. If you have decided to either correct the negatives, or simply live with them, these thoughts will probably be associated with everyone that considers your home in the future.
- Maintenance / The maintenance of your first home should be an important consideration when shopping for that perfect home. I will speak with a couple of presumptions, that if you are seeking your first home, you are young, aggressive and confident of your abilities to succeed and move successfully towards bigger and better goals in life. Based upon these presumptions, the maintenance of your first home might be mistakenly judged as a “piece of cake “. In many instances, this will be the case. If the home is purchased in reasonably good condition, and the general maintenance has been routinely performed by the previous owners, then maybe the presumption that the maintenance of the home will not be an issue is correct. However, if the budget is being stretched by this home purchase, then there is that possibility that your selection could be based upon economics and not the condition of the home. If this is the case, the maintenance of the home must be considered.
One of the difficulties in purchasing your first home is that you have no experience or history of what maintenance issues a home can require. This could grow to become a problem, if the pressures and the responsibilities of owning a home inclusive of all the maintenance issues are not anticipated and carefully analyzed prior to making that initial step.
- Costs of owning a home / The costs of owning a home can become extremely paralyzing. Anyone purchasing their own home for the first time must realize the additional costs, besides the mortgage, that you will be incurred due to the ownership of this home. Some of these predictable, other costs, that should be considered;
- Closing costs are costs that the bank will require at the time of the actual closing on the home. Closing is the term used to identify the time when both the seller and the buyer formally move paperwork, money and keys. Closing costs will include any points that the bank is charging to close on the loan. Points are normally a percentage of the actual mortgage, and must be paid at the time of the closing. Many financial institutions will include the actual closing points in the mortgage. For example if the financial institution is charging 2 points on a $500,000.00 mortgage, the value of $10,000.00 will be paid to the bank at time of closing, but included in the mortgage, creating a starting mortgage value of $510,000.00. Lawyer fees required to close, special mortgage insurances that the bank requires, special conveyance taxes, as well as property taxes for the initial month of the mortgage, may be required at the time of closing. The real estate broker will take their percentage of the selling value of the home, as will any other consultants, home inspectors, or other professional services that were required to close the loan.
Closing costs must be carefully anticipated, to ensure that the purchaser clearly understands all the financial obligations that they will be required to fulfill, at the time of the actual closing.
- Property taxes / There are substantial property taxes required on any home purchase. These taxes are yearly taxes, normally broken up into two bills per year, charged by the local municipality for services provided, such as garbage collection, police and fire protection, etc. Each municipality will provide different services, as well as a different quality of services, dependent upon their tax base and political government. The purchaser of any home, should perform due diligence, when purchasing the home, by traveling to the local City Hall and identifying the taxes that they will incur, when purchasing the home. In general, the more industry and commercial tax paying establishments in the municipality, the less the individual homeowners are required to pay in taxes. This basically means, that the more urban the environment, the less the individual tax, the more rural, the more the individual taxes will be. Location is therefore an important aspect of the cost of property taxes and services rendered. A highly concentrated, urban setting, with a substantial commercial tax base, will generally have less property tax and better municipal services. The remote and rural townships that surround the city will have higher taxes, and less quality of services due to their limited tax base. Therefore, although, romantic and more individually preferred, the small towns, usually have the higher taxes. It is extremely important that each home buyer perform some research regarding their taxes and the political climate of their municipality. If commercial development is encouraged, the taxes may actually be reduced, if development is discouraged, the tax issue will be a never ending battle within the municipality. We have discussed the school system in other webpages on this website, however there is normally a very clear pattern, if the taxes are adequate, and the tax base positively anchored to the municipality, normally the schools are adequate. On the other hand, if the tax base is poor, and lacking an established base, the school systems are usually equally weak and inadequate. Although politicians will make this entire scenario much more complicated than it ever needs to be, simply research the history of the municipality, speak to individuals, and determine if the amount of your tax burden, makes financial sense, prior to deciding to purchase your first home.
Albeit a cliché, you will not get something for nothing! Property taxes, services, and school systems follow this very simple rule! You will pay for what you get!
- Property and liability insurance / The ownership of a home requires a “ Homeowner’s “ insurance policy that will provide protection to the purchaser for loss of the home due to fire, theft, or other hazards, as well as liability on the property and home. The ownership of a home brings with it the responsibility of activities that may occur within the home. If someone is hurt in the home, or on the property, the owner of the home will be required to have liability insurance for such occurrences. The cost of this insurance will depend upon the relative value of the home as well as the amount of liability insurance you decide on carrying. Of course, as with all insurances, there are degrees of insuring the property. The financial institution will require a certain amount of property and liability insurance, however, this is an independent judgement and the owner of the home can increase the liability coverage if they desire. It is also important to understand the required insurance due to location of the home. If the home is within the floodplain as established by FEMA (Federal Emergency Management Administration) there are substantial penalties on this flood insurance. In many instances, unless the homeowner performs certain flood mitigation procedures, and installs specialized doors, louvers, etc., the flood insurance required will be unaffordable. It is important that the purchaser of the home identify where the home is located, in regard to the FEMA floodplain maps, and research the cost of flood insurance. See the webpage on this issue, entitled;
Flood insurance, what you need to know
- Utility costs / The purchase of a home will require, in most instances, monthly utility payments depending upon the utilities that service the home. In most instances, the homeowner will incur an electric bill, unless there is a solar service installed on the home, and the generation exceeds the usage. This is not commonplace. If the home is supplied by gas and water, there will be a gas bill each month, as well as a water bill. If the home is connected to a municipal sanitary sewer, there will be a sewer bill issued by the local sewage plant.
Private costs, that are controllable by the owner of the home, include the cable, telephone, or security services that the owner of the home has decided to sign up for.
Summarizing the miscellaneous bills, after all closing costs have been financed and not inclusive of any mortgage payment;
- Municipal property taxes ( normally twice a year )
- Homeowner’s property and liability insurance (monthly )
- Municipal sewer connection fees ( normally twice a year or quarterly )
- Water Company fees based upon usage ( normally twice a year or quarterly )
- Electric Company fees, based upon usage ( monthly )
- Gas Company fees, based upon usage ( monthly )
- Cable television fees ( homeowner controlled, monthly )
- Telephone fees ( homeowner controlled, monthly )
- Security fees ( homeowner controlled, monthly )
In addition to these fees, if the home is purchase within a condo association or any type of organized co-op or grouping of homes, there could be a general maintenance fee for snow removal, mowing lawns and general upkeep.
- General ownership responsibility / The fact that you now own a home, will add to the overall responsibility of your daily life. Home ownership is a constant adventure of increasing responsibilities. Not to scare the first time homebuyer off, but the ease of simply providing your landlord a monthly check, will be replaced by the following responsibilities, and what I like to call adventures;
- Snow and ice removal
- Grass cutting
- Leaf collection and disposal
- Mail collection / including the installation of a mail box
- Gutter cleaning
- Chimney cleaning
- Mechanical systems ( heating and cooling ) maintenance
- Filter replacement
- Light bulb replacement
- Window shade repair and replacement
- Window cleaning
- Carpet shampooing
- Vinyl floor strip and waxing
- Etc, Etc. Etc ( the ETC means whatever adventure occurs today! )
First time home buyers will be introduced to countless items, which will cost money, and will add to the daily responsibilities of your life.
You must be prepared for this occurrence.
- Unforgiving financial responsibility / When you simply, provide your landlord a monthly check, the financial liability is relatively simple and controlled. If you have a life occurrence that reduces your ability to finance the monthly rent, the worst you will encounter, is the loss of your security deposit by leaving the apartment or rental unit. Obviously I am not recommending this, however the point for discussion, is that your financial liability and responsibility is relatively small and easily identifiable. Once you have purchased a home, the mortgage will continue, the utility bills, as well as taxes, insurance, etc. will continue, until you actually sell the home, if you become financially challenged. There is no simple solution by giving up your security deposit and moving out of the financial obligation. By purchasing a home, you have introduced an unforgiving financial responsibility to your life.
The knowing acceptance of a UFR (Unforgiving Financial Responsibility) is a REAL liability and an important financial responsibility that needs to be discussed and accepted, prior to purchasing that first home!
In summary, this webpage is intended to open the eyes of first time homebuyers, with serious and meaningful realizations regarding the purchase of your first home. Hopefully some of the issues noted and commented on, will open new thoughts and conversations regarding first time home purchasing, as well as the acceptance of the responsibilities, that go along with the first time home purchase.
The economy is not positioned to ensure that the purchase of a home is a sure success. There were times in our history, that the purchase of land and homes, was an almost guarantee of value appreciation and proper investment. This is not the case anymore, and depending upon the location of the purchase, home value escalation will vary. Home ownership is a very exciting and positive step in the building of a family, the fulfillment of an ideal or dream; however it is not for everyone. There are substantial positive elements of simply providing your landlord the monthly rental check, and living your life.
Good luck, and please proceed into your first home purchase, with an open mind, accepting advice and guidance from successful and especially unsuccessful home owners. Research the topics discussed in this webpage, and understand the financial obligations, as well as the personal responsibilities that home ownership will entail.
Happy house hunting!