Dear Kirk: My fiance and I are ready to start house shopping. What do we need to do to get our ducks in a row so that we’re ready to start the process right away if we find a place we like?
Kirk Says: The first thing to understand when you start house shopping—whether this is your first house or your 10th house—is your budget. There is nothing worse than finding your dream home only to realize that no matter how you slice up your budget, the numbers don’t work. I’ve seen couples stretch themselves too thin (and lenders that were willing to let them to earn the sale) only to lose the property just a few years into home ownership.
There are many home affordability calculators out there on the web to help you get in the ballpark. Start there. Once you have an idea of your budget, the next step is getting pre-qualified with your lender. This step will be immensely beneficial to you as you earnestly start the search process and your realtor begins showing you properties.
In addition to figuring your budget, be sure to take into consideration other costs associated with your closing. Closing costs are typically comprised of origination fees charged by your lender, title and settlement fees, and prepaid items like taxes and homeowners insurance. Closing costs will typically range from $2,000 to $5,000.
A final note on property budgeting is understanding your escrow account. Escrow is the money that the lender will set aside to pay your annual property taxes and homeowners insurance.
To gain a good understanding of what your homeowners insurance costs will be, select one of the potential homes and contact three different insurance agents in your area for an annual quote. Keep in mind that the cheapest price usually means that something is missing from your coverage. Look for an agent that spends time explaining the coverage; this will help you determine the true value you are getting within the insurance premiums you’re being offered.
Other beneficial tools are websites and apps like Zillow and Trulia. These websites will allow you to quickly check selling prices of comparable homes in the area that you are searching. They will also provide important information on property tax estimates and school districts. On that final note, keep in mind—whether you have children of school age now or not—you definitely want to consider your future family situation as well as resale value in the future. If expanding your family is a possibility, you should be looking for good schools in the neighborhood you choose to call home. Even if school-aged children don’t factor into your plans, the quality of nearby school districts will still play a role in determining property values.
Kirk Gwaltney is a Chartered Financial Consultant and a Chartered Life Underwriter in Brentwood, Tenn. Learn more about him at kirkgwaltney.com.