There are a number of things to keep in mind before you jump into the market.
No one wants to move in Illinois in January or February. Now that the sun is out and the “For Sale” signs are up, it’s a popular time to buy a house. You may be looking to sell and buy, or determining whether to buy or renovate your current house. You might be a first-time home buyer wondering if you need to keep saving, a couple wondering whether to refinance, or a snowbird eyeing a second home on the coast.
Before you jump into the market this spring, keep in mind that investing in property—whether it’s your current home or a new one—is a big decision that should be carefully considered. To help ensure your needs are at the center of your decision to purchase or refinance, work through these five steps:
- Assess your financial situation. Start by taking a comprehensive look at your finances. Even if you’ve purchased a home in the past, it’s worth doing because it’s likely your situation has changed over time. Before you make this significant purchase, know your resources, risks and opportunities. We recommend working with a financial advisor to review the following: savings, assets, liabilities, income, living expenses and your long-term financial needs. Also consider any large costs or significant life changes that may be on the horizon. Organizing this information right away will set you up to make informed decisions and ease the mortgage application process later.
- Get pre-qualified or pre-approved. A pre-qualification clarifies your options. It will give you an estimate of the loan you might qualify for, which gives you a sense of what you can afford. Depending on the answer, you may choose to wait and save, or look at options for reinvesting in your existing property. Talk to your financial advisor to see whether it makes more sense to stay in your current home and refinance. If you decide to buy and are within weeks of making an offer on a house, we recommend getting pre-approved. The bank will review your finances, credit score and mortgage application, and approve you for a specific loan amount. This will help you seize opportunities when they come up—especially if you have an eye on a certain area—because you’ll already be approved for a loan amount. This can be a good move if you want to secure a low interest rate, and it usually carries more weight with sellers.
- Think about (and discuss) your goals. Whether you’re shopping for a first home or a vacation home, pause to consider your goals. Reflect on your own, but also talk to others who are invested in the decision, like your partner, about their goals. A frank discussion will clarify needs and wants for the short term, as well as your future. Depending on your life stage, investment goals and lifestyle, this can vary widely. Will this be the house in which you raise a family or retire? Is it an investment property? Is it your “forever home” that you’ll work on over the years or just the next stop? The answers will help guide your selection, as well as where you look and at what price range. You may find that the house you need is different than what you originally envisioned. You may even find that your existing house, with a few updates, offers just what you need.
- Rank your priorities. Based on everything you figured out in the previous step, create your list of needs, deal-breakers and “nice-to-haves.” For instance, if you know your family will be growing, you might put down “large kitchen” under needs and “three-car garage” as a nice-to-have. If you’re a light sleeper, houses next to a busy road may be a deal-breaker. If you’re planning to retire in the house, think through what qualities it would need to have, like first-floor accessibility. Do some research and talk to others as you build out this list. Consider what you wish was different about your current house. Finally, rank your list to define your priorities. Knowing up front what you absolutely have to have, and what you could compromise on, will help when you’re searching for houses on your own or working with a real estate agent. This step is especially crucial if you’ve decided to renovate, as it will help guide your conversations with a contractor.
- Line up your team of professionals. Figure out which local specialists you’ll work with before you need them. If you’re buying a property in another state, it’s especially important to work with local experts. Decide whether you’ll work with a real estate agent and, if so, whom. Their knowledge of the market can lead you to promising property more quickly, and they can help keep you informed of issues like tax laws, insurance needs and HOA fees unique to the area in which you’re looking. They’ll also be a good resource during the contract negotiation, where they’ll advocate for your interests against those of the seller.
Whether it’s your first or your fourth, buying a house takes time, careful decision-making and forethought. It’s easy to get caught up in interest rates, zip codes and property taxes, but the purchase comes down to three important things: your finances, goals and priorities. The sooner you sort these out, the better off you’ll be. You might even find that the best house for you is the one you’re already in. No matter your situation, it helps to enlist the help of a financial advisor, who can help you sort through the different options and find the best solution for you. iBi
Brian Weber is a mortgage banker for Commerce Bank in Peoria.