3-Part Series on Making a Successful Home Purchase
Part One: Preparation
By failing to plan, you plan to fail. Let’s figure out how to prevent that in part one of this 3-part series on Making a Successful Home Purchase.
This is part one of a three-part series on Making a Successful Home Purchase. Yes, it’s true, we have another blog post entitled 11 Steps to Home Buying. So which is it? Are there 11 steps, or just three?
I think the best answer is, “Yes.” There are 11 steps. You can find them here. If you wanted, you could probably expand that to 15 or even 20 steps. Or, you could condense those 11 steps into three major categories. If you did that, I might suggest these three as major categories: Preparation, Purchasing, and Closing.
Hey! Lookie there: preparation, today’s topic! How about that?
Comparing this series to our 11 Steps, you’ll see that eight out of the 11 are steps taken to prepare. In order to make a successful purchase, you have to spend a lot of time deciding what would make a home a perfect fit, learn (or re-learn, business majors) a ton about financing, and move from being aware of the general market to being an expert in a specific market.
Let’s get started!
What do you want out of this?
What makes a home a perfect fit depends on who you are. Using our 11 Steps post, let’s consider steps 2, 3, 4, and 8. In order to make a successful purchase, you need to determine your goals, create two lists (needs and wants), select an area, and see some houses.
Here are a few scenarios that you might be considering as goals for the purchase.
As a first-time home buyer, you might want to only consider homes that could eventually have rental potential. First, let me commend you on your forethought. Planning for your future as early as you are is only going to make those “someday” goals more attainable. If this type of goal resonates with you, then obviously the legal ability to rent a home is going to go on your “needs” list.
If you are a move-up buyer, one who’s maybe moving their growing family into a larger home, you’ll probably have additional bedrooms or square footage on your needs list, and good schools on your wants list, which would probably have a significant influence on your search area.
Are you starting to see how the decisions you make at each point impact the others? Good. That means you’re on your way to success.
Step 8, See Some Houses, comes with a huge disclaimer. Depending on two things - how competitive the market is, and how earnestly you pursue the previous 7 steps - you very well may purchase the first home you see. Don’t be afraid of that. If a home has all of your needs and wants, fits within your budget, and gets your trusted real estate advisor’s stamp of approval, why wouldn’t you pull the trigger?
The only reason you wouldn’t? Because you didn’t prepare well enough.
What even is financing?
In the video that accompanies this article, Russ does a fantastic job detailing the 3 pillars of loan financing. Those 3 pillars are a buyer’s CIA - Credit, Income, and Assets.
When you are preparing to purchase a home, and you know that you’ll be using a loan to help finance the purchase, you need to find a good loan officer. Step 7 in our 11 Steps is to Secure Financing, and that falls after you find a real estate agent.
Why is that? There are two big reasons. The first is that your real estate agent more than likely has relationships with financial partners who have proven their mettle over years of transactions and varying market conditions. Secondly, your real estate agent is going to be able to help you ask the right questions to gain confidence in your financing options.
In truth, steps 1, 2, 5 and 7 all help you prepare for financial success. When you get serious about your own finances, you’re able to quickly and effectively discuss scenarios with your loan officer to create solutions. You’ll probably find that your future goals may impact your financing options, and we’ve already discussed how your real estate agent can have an impact on your financial decisions.
How much do you think this house is worth?
The third area of preparation you need to attack is becoming a hyper-local, super expert of a given market.
For instance, your local news, realtor association boards, newspapers and local magazine circulations will comment on the real estate market in general, and it’s great to be aware of general market trends. You want to be an informed and empowered member of society.
However, that’s not going to help you make an informed decision on a specific home.
No, in order to prepare for a successful home purchase, you need to become an expert on a specific township, zip code, neighborhood, and even block within that neighborhood. What kind of materials are used in this neighborhood? How much value does a garage carry in this area? Will the neighborhood support your remodeling plans?
So while the local news media will report that “home prices have come down 5%,” you need to know the trends of your target neighborhood and how well a home conforms to neighborhood norms. A 2-car garage in one neighborhood might be a huge and almost invaluable amenity, but the neighborhood on the next block might typically feature a 3-car garage home. You’ll probably also find that one quadrant of a neighborhood trends higher than another for any number of reasons.
Steps 4, 5, 6, and 8 of our 11 Steps to Home Buying are going to help you become a hyper-local, super expert. Select an area; find out why people enjoy living there; talk to the neighbors about their outlook for the community, and rely on your agent to help you make sense of the numbers. Once you see 2-3 homes, you’ll be able to see why one quadrant might outpace another and make decisions about pricing and value.
Now you’re prepared to Purchase
The age-old saying goes something like “If you fail to plan, you’re planning to fail.” And we don’t want that, especially when we’re talking about the biggest investment most of us will ever make.
That’s why the overwhelming majority of our 11 Steps are in the category of Preparation. So take the time to make some tough decisions on needs and wants, figure out how you’re going to make the financial side of the purchase work for your life’s vision, and work with your trusted real estate advisor to become an expert on a property before you move on to the Purchase.
Once you’ve done that, you’re a third of the way to Making a Successful Home Purchase.