You were too slow putting in an offer and lost your dream house. Or maybe you spent way over your budget. Or maybe you should have rented for a few more years and built up your savings.
Many homeowners wish they knew more before buying for the first time. And with rising price tags, fewer homes on the market, and higher interest rates than last year, finding the right home can be especially tricky.
To help new buyers avoid the pitfalls, Chicago-based real estate expert Ilyce R. Glink wrote a 440-page guide titled, “100 Questions Every First-Time Home Buyer Should Ask.’’ The book’s fourth edition was published in February.
The focus this time? Millennials, who are the “strength of the first-time home buyer population,’’ Glink said. “[Many pages] were written from the ground up to account for a lot of the changes that millennials go through.’’
Inspiration for the first edition struck in the early 1990s while Glink was writing real estate stories as a freelancer for the Chicago Tribune. She consulted more than 100 real estate agents to build her collection of questions and answers.
Here are Glink’s tips for today’s first-time buyer:
Q. What are the first steps to house-hunting?
A. You really have to make up what I call a “wish list’’ and a “reality check.’’ A wish list is everything you’d want in your house, and the reality check is everything you can’t live without. You won’t be able to afford everything on your list. Once everyone makes that list up, then you get together and consolidate. Really prioritize . . . That and figuring out exactly how much you can afford to spend — those are the two most important things every first-time home buyer should do.
Q. Do you have any tips for figuring out how much you can afford to spend?
A. It depends. It’s very particular. On my website, thinkglink.com, I have calculators that will do the math for you, [and] they’re all free. It’s important to think about how much debt you have. If your debt service — meaning the amount of money you pay to maintain your debt every single month, whether it’s credit card debt, student loan debt, auto loan debt, personal debt — exceeds 10 percent of your take-home pay, you’re probably already in trouble. That’s just a rule of thumb. . . . [And] lenders will want to see a cushion of cash equal to several months’ worth of payments in the bank, so that if something happens, you’re covered.
Q. Do you have any other tips for setting a budget?
A. Millennials are much more into experiences than materialistic things. Millennials often have trouble remembering to factor in all the experiences that make up their lives. Whatever your lifestyle is, you have to account for that in the amount you spend every single month. By not realizing what choices you have to make, you could find yourself having to postpone home-buying. I wanted people to understand the choices they have to make early enough to have a course correction, so you can buy when you want to buy.
Q. Does it make sense to lock in an interest rate?
A. You should lock in an interest rate only 45 to 60 days before you’re going to buy something. It will cost you too much to lock in something for longer than that. You have to think about timing, interest rates, and how much you can afford. Then, once you’re out there hunting and you find a place, that’s when you want to lock in. It’s probably going to take you 45 to 60 days to close, depending on where you live. Can you close faster? Absolutely — in which case you should just have a shorter lock. That advice is different if you’re buying new construction. [In that case], once you put down the money in the contract, then you typically work with the builder’s lender to figure out what deal they’re offering. Typically that will be a better deal, because you’re going to need a longer lock.
Q. Do you have house-hunting tips for buyers on a tight budget?
A. Don’t let people force you to spend more than you’re comfortable spending. If you’re on a tight budget, buy a smaller house that gives you the option to add on down the line. That’s what my husband and I did. We bought a house that was the most we could afford. We thought, “We can someday remodel.’’ It took five years for us to save up enough money to do the big remodel that we wanted to, but we were able to live in the house for five years. I think that this idea of deferred gratification is super-important. . . . [Being preapproved for a mortgage] helps in the home-buying process because a seller knows you can get financing approved. In a hot market, that’s important. There’s a big difference between preapproval and prequalification. Prequalification is an educated guess. You can prequalify yourself using online calculators, but it doesn’t mean anything. Being preapproved means a lender has committed in writing to funding your loan provided the home appraises out in value.
Q. Do you have any tips for dealing with increasing competitiveness in home-buying?
A. You can always write a letter telling the seller why you’re going to be a great steward of that property. You can also know exactly what your maximum price is and offer that from the get-go. . . . You have to be fast. I’d also like to say [that] working with the right kind of agent is important. If you’re in a super-competitive market, you want to work with an agent who’s very responsive to you.
Q. What are the common mistakes that first-time buyers make?
A. My favorite is a timing mistake. They’re generally renting, and then they decide they want to buy a house. They’re not sure how long that’s going to take. Three months in, they [might] find a house, but they’ve still got nine months to go on their lease, so they may end up paying mortgage and lease payments at the same time. That can be very costly.
Q. Because the market is so competitive, should buyers go in with offers that waive inspections?
A. You should be careful about that. There could be various problems with a property, and you’ll never know it. You should keep your eyes open. In the book, I talk about some things you may want to watch out for, like weird brown spots, a moldy smell in the basement, paint that’s peeling and bubbling (it could be a sign of water infiltration), and cracks in the foundation or in a wall. Those are signs — and there are many others — that you could have very serious problems, and your offer should take those into consideration. But I would still have an inspection so that you know what you’re getting into.
Q. Last thoughts?
A. There’s a sense that if you look online, you’ll find all the information you need about buying a home. Buying a home is a complex thing. It requires cash, finding the right people, building a really great team, and a significant amount of time. If you’re not ready to make that commitment — not to mention the commitment of actually owning a home, taking care of that home, and paying for that home — you should probably rent for a while longer. But if you’re ready, this is as good a time to buy as it’s going to be over the next five years. So you might as well get to it.