In our previous article, we discussed what it was like buying a home during a pandemic-driven seller’s market. It’s an understatement to say we learned A LOT during that process. In this article, we’re going to explore the top 5 things to know about homebuying that we wished we knew before beginning the process.
Top 5 Things To Know About Homebuying
1. The Housing Market Dictates the Experience
Like most things in life, timing is everything! This was especially true when it came to our homebuying decision. In the back half of 2020, mortgage rates were at an all-time low, even testing the low 2.0% range for fixed 30-year mortgages. These low rates, coupled with increased demand created a hot seller’s market driving housing costs through the roof. When we started looking at homes in early 2020 compared to when we placed our offer in December 2020, comparable home costs had risen 10-20% in some areas.
Despite rising costs, we were ready to move and put in offers on multiple homes that we were excited about and fit within our budget. We quickly realized that in a hot seller’s market, over asking bidding wars are commonplace and we lost out on three homes in a row. One of the homes we lost out on had nearly 20 offers and closed well over asking…like $80K over!
If it was a cooler market and slanted in the buyer’s favor, our experience would have been much different. We would have been able to place more competitive offers (possibly under asking) and dictate some of the terms of the agreement. Timing is everything, but there are times in our lives when our needs might not match the ideal market conditions. In our case, we were honest with ourselves about our budget and our desire to move, and were able to find a home that we fell in love with.
Professor Tip: If you can hold out for a more favorable market, go for it. However, there is no crystal ball and you should feel confident to buy your home when the time is right in your life.
2. Creative Negotiations Are Commonplace
If we didn’t know better, after watching all the HGTV homebuying-focused shows we’d just think the buying process is as easy as offering a purchase price and that is it. The truth of it is, there are pages and pages of the purchase agreement outlining everything from the purchase price to the closing date and all the inspections in between.
Outside of purchase price, buyers and sellers can get creative in the negotiations to come to an amicable deal. You can forego or adjust the time allowed to complete inspections. Put more money down so the buyer thinks you will be be less likely to fall out of escrow. Sellers can opt to refund the buyer cash in lieu of completing the requested repairs.
In our situation, we were unwilling to budge on our purchase price, but offered accelerated inspection deadlines, 30 days or less closing, and accepted cash back in lieu of some needed repairs. In the end we were able to get creative and close on the house.
Professor Tip: Crafting the best offer doesn’t always mean offering the most money. Work with your realtor to put forth a creative offer without busting your budget.
3. Escrow Is Expensive
While we expected the homebuying process to be expensive, it is after all the biggest single purchase we ever made, we were still surprised by all the additional costs incurred during the escrow period.
Beyond needing to pay for licensed inspectors to make sure the property has no major issues, the escrow and loan companies often have a lot of smaller costs that add up.
Some of those additional expenses, but not an exhaustive list, are:
- Deposit
- Underwriting and closing fees
- Escrow and loan tie-in fees
- Lender’s coverage
- Notary fees
- Bank wire transfer fees
- Annual pre-payment of home insurance
- Prepaid pro-ration of taxes (dependent on purchase period)
- And a number of random fees that overall seem ridiculous
Looking at our escrow true-up felt like looking at our phone bill where we’re continuously confused about what we’re paying for. For the sake of your sanity, I’m not going to explain all those expenses in this article, but plan to have many fees during the process.
Professor Tip: As a buyer, be prepared to payout 1-3% of your loan value during the escrow period.
4. Limit Your Money Moves
Since we were pulling funds from multiple different financial accounts and institutions to pay for this house, once we went into escrow we immediately started moving our funds around to consolidate. In our minds, this would help make the process more efficient when we closed out escrow. Instead, it created a major headache!
Since the lender needs to know where your money is coming from and who you got it from, every time we transferred money across accounts, we had to provide transactions records going back a few months. This was a major pain considering we were working across many accounts.
Professor Tip: Consolidate your funds prior to entering escrow.
5. Appreciate the Value of an Experienced Realtor
I’ve held my California Real Estate License for over a decade, but have never actively managed real estate transactions. So when we entered into the homebuying process, I wondered if we even needed a realtor. Let me tell you, I am glad we decided to use one.
As a buyer, you should always be represented by a realtor. Their commission is paid from the sale of the home and at no additional cost to the buyer.
Beyond this, a good realtor can be a reliable resource to fight for your interests and help you navigate the complicated buying process. In our case, we were looking for a home outside our immediate area, so his expertise in our desired area helped us be more targeted on desirable neighborhoods. Additionally, he was able to visit our property multiple times during escrow without us having to jump on a plane every time. Our realtor even flooded the backyard just to see how well the drainage worked…talk about above and beyond! Using a realtor is among the most important top 5 things to know about homebuying.
Professor Tip: Trust a qualified professional to represent you during homebuying. As a buyer, there is no downside.
The Key Takeaway
While these are our top 5 things to know about homebuying, it is a complicated process that you can’t fully be prepared for. Be sure to work with a professional realtor, prepare yourself for some emotional highs and lows, and enjoy the process as best you can. While a difficult process, homebuying should be one of your happiest moments making a life-changing purchase!
Check out additional topics to make personal finance SLIGHTLY EDUCATIONAL on our Personal Finance page.
