My wife and I just bought our first home together! Those of you that have already gone through the process before understand that buying a home can be quite a learning experience. I actually bought and sold one home before this joint purchase, and I learned quite a lot between my first and second home buying experiences. The first time around I was completely new to the process and just went with affiliates of my lending company rather than doing any of my own research or shopping around, which was a costly mistake. The following is a list of several items I would recommend you shop around for.
1) Real-Estate Agents
Do not be afraid to interview and vet your agent. Real-estate is a competitive industry and I would be highly surprised if there is a shortage of agents in your area. Do not be afraid to find a different agent if yours is not meeting your needs or is not acting in your best interests. Some agents will try and show you homes outside of your price range, that meet your needs, or that is located in a suboptimal or unpreffered area just to get a sale. If that is the case get a new one! You are not obligated to use the first agent you talk to.
2) Mortgage Lender
Shopping around for a mortgage loan can save you a LOT of money. As an example, I applied for a mortgage loan through a partner company of the first agent I vetted and the best interest rate offered to us was 4.25%. I shopped around and was able to get a 3.375% fixed interest rate WITHOUT buying points (paying more money up front to buy a lower interest rate). That 0.875% may not seem like a big deal, but if you put it into context of the life of our $160,000 15-year loan request:
- Interest Paid Over 15-Years @ 3.375%: $44,122.84
- Interest Paid Over 15-Years @ 4.250%: $55,656.18
As if that is not a staggering enough of a difference ($11,533.34), the amount is even more significant on a 30-year loan:
- Interest Paid Over 30-Years @ 3.375%: $94,647.42
- Interest Paid Over 30-Years @ 4.250%: $123,357.38
So you can see that 0.875% difference is literally tens of thousands of dollars you are losing over time ($28,709.96 difference in this case). Compound interest is a double edged sword – spending a few hours shopping around and comparing interest rates is definitely WORTH your time. Some companies are competitive enough to even match or beat interest rates offered to you by other companies, so do not be afraid to send them your pre-approval letters to start that conversation and potentially get an even better rate.
It’s also important to understand and compare the types of home loans available to you. To name a few:
- Conventional – generally has stricter rules and requires 20% down to avoid Private Mortgage Insurance (PMI).
- Federal Housing Administration (FHA) – much lower credit score and down payment requirement; however, PMI will be required for the life of the loan.
- Veterans Affairs (VA) – have much stricter rules but do NOT require a 20% down payment to avoid PMI.
Make sure to look into which options best fit your needs. Most people that qualify for a VA loan automatically assume they’re the best option. That is not always the case; it certainly was not for us (we do qualify for a VA loan but couldn’t get less than a 3.75% rate from lenders that offered VA loans).
3) Title Company
This is basically the law office that is going to mediate the transaction between the buyer and seller. Sometimes you can shop for this service and sometimes you can’t. It depends on your mortgage lender and your real-estate agent. You can and should ask what each line you are being charged for represents and if it is a service you actually want/need. You might be surprised to learn what exactly you are paying for.
4) Home Inspection
Home inspections are not usually required for purchasing a home; however, it is HIGHLY recommended you get one. Depending on the size and location of the home this price can start around $200 and go up. Don’t let that dissuade you – home inspections are money well spent. Hiring a licensed inspector not only informs you about aspects of the home that may require attention, but also allows you to revisit the negotiating table. For instance, you can ask that any/all issues be rectified OR lower your initial offer to compensate for the difference. Make sure your inspector is licensed, well-reviewed, and is willing to have you present during the inspection.
5) Property Appraisal
Home Appraisals are required if you’re borrowing money (mortage lenders are not going to let you borrow more money than your home is worth) to finalize your loan and are a service you may or may not get to shop for. Many lenders only use particular appraisal companies and handle this side of things, requiring an appraisal deposit up front. If you can shop for it, though, make sure it is a reputable company.
6) Home Insurance
Make sure to protect your property against disasters that are prevalent in your area (beyond fire – things like earthquakes, flooding, etc.). More than that, do not just go with the first quote you receive. When shopping around make sure to also get quotes for your auto insurance or other insurances to try and take advantage of bundling discounts and such. Many people recommend shopping around for insurance every 1-2 years or so to ensure your rates are remaining as low as possible.
If you have already bought your first home (or second home) hopefully you did not make some of the same mistakes I did and cost yourself thousands of dollars! In any case, we hope you found something useful in this post!
What have your experiences buying a home been like? What are some actionable tips or considerations you would recommend to our other readers? Comment below!