Buying a house seems straightforward enough — you look at listings, tour some houses, get a mortgage for something within your price range, sign on the dotted line, and you know, make payments for 15 to 30 years … or what feels like eternity. But, as you get closer to yanking that “For Sale” sign out of the front yard and brandishing it above your head like the victor you are, there are always a few unexpected hiccups. And terms that sound like straight-up jargon. Fear not. Here are some of the big ones to look out for as you embark on this journey. (Godspeed, friend.)
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1. Don’t Blindly Trust The Estimated Mortgage Payments Online.
These days, just about everyone starts their home search online, using a site like Zillow or Trulia. They’re loaded with listings, photos and other helpful info, but the listings themselves shouldn’t be your starting point to determine whether you can afford a house.
It can be easy to take experts’ recommendations to spend 28-30 percent of your income on housing, divide that by 12 and think, that’s it! That’s the monthly payment I can make! Then compare it to the monthly mortgage payment estimates shown on online listings to determine what you can buy, but … those estimates are often wrong. That’s because the data often assumes a down payment of at least 20 percent — which many homeowners don’t do — and a set interest rate, which you may not get. Oh, and it may not factor in the cost of property taxes and insurance, which you’ll also have to cover.
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Depending on your credit score, the current state of the economy, and a host of other factors, that final monthly payment can vary widely, so be prepared that what seems like it’s within your budget may not actually be in budget.
To get a better sense of what your monthly payments will look like, try a mortgage calculator that lets you set the down payment, loan terms, and factors in things like property taxes and Homeowner’s Association fees (if the house you want to buy has those), like this one from MortgageCalculator.org.
And, once you have a figure you feel comfortable with and apply for a loan, you’ll get a sense of what the bank feels comfortable actually lending you. Just note that you may get pre-approved for more money than you had budgeted for — and that that doesn’t mean you can (or have) to go HAM, spending every penny of it.
2. You Need To Save Up For More Than A Down Payment.
By now, you’ve probably heard that most experts recommend saving up 20 percent of the cost of the home you want to buy for a down payment. And that most lenders will require at least 3 percent, unless you qualify for a zero-down payment loan through Veterans Affairs or the Department of Agriculture. But, even if you’ve used a mortgage calculator to figure out what you can afford and have dutifully set that down payment aside, know that you’ll need more money to lock down that home.
Not just for movers. Or homeowner’s insurance. There’s the inspection, which will set you back a couple hundred, and the closing costs, which typically set you back another couple thousand. You can get a rough idea of what to expect —factoring in where you plan on buying, the cost of the home, and more — using this Closing Cost Calculator.
3. Your Monthly Payment Includes More Than Just Your Mortgage.
Say whaaaat?! That check you’ll be making to your lender often includes your property taxes, too. After all, until you pay off your debts like a good Lannister, the mortgage company technically owns your house, and they don’t want to jeopardize their investment because you forgot to pay the taxman. So they take care of it, and put your monthly tax payments into an escrow account. (Side note: OMG, ARE YOUR EYES GLAZING OVER YET?! STAY WITH ME! PLEASE!) When your taxes are due to the county, the lender takes the money out of escrow and pays it.
If the amount in escrow is more than the cost of taxes, you get a (hopefully) fat check. If they underestimated the annual cost of taxes, you’ll get a bill, according to SmartAsset. Taxes become your problem again once the last mortgage payment is made.
Oh, and if your down payment is less than 20 percent, expect to have your mortgage cost a little more, because you’ll have to pay Private Mortgage Insurance (PMI). Some lenders offer different ways to pay this — and no, tacos is not one of them — though it’s often a monthly cost that’s added to your mortgage payment. The good news: Once you’ve paid 20 percent of the home’s cost, that PMI expense goes away.
Keep calm, and Phil Dunphy on. You’ve got this whole homebuying thing. You do.
4. If The Inspection Isn’t Terrifying, Be Concerned.
Once you’ve found The House and the homeowner has agreed to your offer, you need to hire an inspector to nitpick the sh*t out of it, telling you every single thing that’s wrong with the space. This is terrifying, because afterward, they’ll talk you through what issues they found and hand you a packet of papers as thick as the script for all three Lord Of The Rings movies outlining every little detail about the house.
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You will suddenly think you’ve picked a rotten apple of a house. You will suddenly question why you shelled out a couple hundo to hear you’ve picked a rotten apple of a house. You will hate this whole process and want to go back to renting. Or living at home, even if your legs are too long for that race car bed.
THIS IS NORMAL. THIS IS GOOD, ACTUALLY.
It’s the inspector’s job to tell you the gutters point the wrong way, or the deck needs to be replaced, or it looks like the washing machine’s two loads from going kaput. The more thorough the findings, the better. This lets you assess whether the house really is worth the asking price — and negotiate them down or demand some things be fixed before you sign on the dotted line.
5. You Can Ask For The Art On The Walls, If You Wanted.
That doesn’t mean the homeowners will agree to it, but when you’re buying a house, you can negotiate to buy appliances or furniture you loved. On the flip side, the homeowner can request to take certain things with them — like the fig tree you fell in love with when you first visited the space (which actually happened to me). That doesn’t mean you have to say yes, either. But it does mean you can negotiate with them, if that tree — or tufted sofa, or vaguely otherworldly chandelier — really matters to either of you.
6. Closing Time Will Last Way Longer Than It Takes To Get That Semisonic Song Out Of Your Head.
Closing time — AKA the period where you get your financing in order, have the inspection, and confirm the selling price with the homeowner — can often take up to 50 days. Usually, the seller wants to unload their house quickly, so they can move on to their new digs. Offering a quick closing period (assuming you can get it all done in time) can push the seller to accept your offer, even if it’s a little lower.
Agreeing to close on the house in 30 days — instead of the usual 50 — could help you seal the deal.
On the flip side, if the homeowner hasn’t found their next place, they may push for more time. It’s just one of many things you may not realize you can negotiate, but you totally can. And should. (In my case, the homeowner agreed to pay us $200 a night for a week, rather than live out of a hotel, after our agreed-upon closing time ended and they weren’t ready to move.)
So, there you have it. It’s an intense process, it sucks at times, but when you can finally paint the walls or watch Nailed It! on a decibel above a distant whisper, it’s worth it.