4 things to do when buying a home

Buying a home is already fraught with emotions; so much pressure to “get it right.” After all, you can’t just return home down the road if you decide it’s not the right fit. In 2020, shopping for a home amid the uncertainty of the coronavirus outbreak easily multiplies the anxiety and stress.

A global health crisis, however, shouldn’t be an excuse for skipping proper due diligence, especially on an investment worth hundreds of thousands of dollars. When it comes to buying a home, you don’t want to make a costly mistake. Or worse, end up with a property you’re not completely in love with.

What should I do first when buying a house?

Below are four tips everyone can do (even if they’re social distancing) to ensure they’re making the most informed decision possible.

1. Shop around for mortgage rates

Currently, mortgage rates are at record lows. As of writing, they’re lower than 3% - averaging around 2.8% APR for a 30-year fixed-rate loan, which means the monthly payment on a $300,000 house at this rate would come in around $1,549.

But what if you were able to find a lender who offered you a slightly lower rate at 2.6% APR? This would lower the monthly payment on the same $300,000 home to $1,524 a month. $25 each month may not seem like much, but over 30 years this adds up to a tidy $9,000.

Here’s the catch: you won’t be able to find the best mortgage broker or lowest rate unless you shop for it, which is why it is best practice to shop mortgage rates via a website like Credible, which allows consumers to compare lenders and mortgage rates in minutes – and with fewer forms to fill out.

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2. Be aware of changes to the homebuying process

Pre-COVID-19, buyers would shop multiple homes with their agent and attend closings in person. In light of the pandemic, however, below are just a few of the changes to the home buying process:

• Virtual home-tours.
• Remote closings or closings where each party sits in a different conference room.
• Heavier reliance on real estate agents for the expertise and local knowledge since looking at a large number of homes isn’t easy.
• Low inventory of homes, meaning it is a “seller’s market.”
• Low rates spur mortgage activity, meaning people are still buying. This equals competition for a low quantity of homes.

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3. Do the math (and then do it again)

Once you determine your affordability and potential interest rate from your lender, spend a few moments with an online mortgage calculator to do the math on what your finances will look like post-purchase. Here are a few different scenarios to run:

• How different down payment amounts affect your monthly payment.
• If paying interest rate points with your lender to decrease your interest rate makes sense and how much it will affect your monthly payment amount.
• If paying less than 20%, how much private mortgage insurance will increase your monthly payment.
• If your pre-approval limit is truly affordable for you. Play around with different price points and see if this fits in with other debt obligations (student loans, auto loans, credit cards) that you may have.

Any change in credit score, your down payment amount, interest rate, and the purchase price can substantially alter how much you’ll pay each month, so running the numbers in many different scenarios will give you an idea of which home's pricepoint is actually affordable for you.

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4. Visit the home more than once

COVID-19 may mean an all-virtual first and second showing (and a lot of looking at homes on Google Maps), but that still doesn’t mean you should skip a drive-by viewing. Often times, homes can look great in photos and online, but a quick drive-by reveals a nearby highway, shopping center, or ongoing construction.

Potential buyers should also visit the property at night to get a feel for the neighborhood after dark. While these “drive-bys” will likely just confirm your choice, placing yourself in the neighborhood at different times of the day will ensure total peace of mind and fewer surprises after moving in.

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5. Factor in closing costs

As a final tip: don’t forget to factor in closing costs and around 1% of the purchase each year toward home maintenance. It’s a good idea not to drain your savings entirely to make the down payment on the home, making it even more important to spend time with the online mortgage calculator, and view rates with multiple lenders to ensure you’re saving as much money as possible.

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