How to...Buy a Home

Recently, we had the opportunity to visit with a young couple who are preparing to buy their first home. In the conversation, they asked for our input about how to approach buying their home. What should they be thinking about? How do they approach it? We offered the following.

1. Pick a geographic area which fits your lifestyle and relationship preferences.

2. Look for a home in your price range, which is the price that fits your cash flow.

3. Discuss and determine before you talk to realtors what your ideal home looks like, and what you are prepared to settle for in a first home purchase, so the buy fits your cash flow.

4. Bring at least 20% of the purchase price to the closing table so you can avoid Private Mortgage Insurance or PMI. PMI is insurance you pay for, which coverage goes to the lender if you default. Very poor use of funds.

5. Assuming 20% down, choose to pay property taxes and HO insurance out of pocket rather than through escrow.

6. During the search and evaluation process, research property taxes and tax trends on homes you are considering.

7. Also, look at the cost of homeowners insurance and whether the area you are considering is insured through a state pool or by commercial insurance carriers.

8. Investigate how well the home is insulated, how it is heated and cooled, and what costs and cost trends are for heating and cooling the home.

9. Determine the age of the heating and cooling systems, the water heater, and the roof.

10. Explore whether there have been any insurance claims on the property.

11. Once under contract, hire an inspector to look at the home for you, and give you a full report of the state of the property.

12. Use the inspector’s findings to work with the seller to bring the home to your preferences or to code.

13. Choose not to be emotionally involved in the purchase of a particular home (this is the challenging one).

14. In your household budget, allocate 3% or $3000 per $100,000 of home value, to long-term maintenance, repair, and upkeep.

15. Take out no more than a 15-year mortgage. And make it a fixed rate instead of variable.

16. Purchase price/cash flow ratios? To maintain cash flow margin in your household budget, keep principal, interest, taxes, and insurance (PITI) to no more than 20% of your gross annual cash flow – or income for most buyers. The 3% allocation to maintenance and upkeep will bring total housing costs to less than 25%.