Adulting 101 – How to Buy a House.

This should be a college course, am I right? After graduating from college and getting a “big kid job”, buying a home seems like the logical next step for both “adulting” reasons as well as financial (side note, mortgage is often less than rent and you build equity so, win/win). However, did you ever learn anything about purchasing something that costs more than your education? Because I didn’t.

Behold, your cheat sheet:

There are significant expenses to consider before you can start paying less monthly than you do in your overpriced city apartment.

  • You need a down payment which is 3%-5% generally for an FHA loan or around 20% for a classic mortgage. FHA seems the way to go, but research it, there are a lot of stipulations for this one.
  • You need closing costs, which are approximately 7% of your purchase price though you may be able to work out a seller concession that will roll this into the purchase price or have the seller take care of it.

Those are the costs everyone considers, here are the costs that you don’t think about and that I certainly did not think about when I was attempting (unsuccessfully) to become a home owner:

  • Home inspection (anywhere from $500-$1000 at the time of inspection)
  • Appraisal (similar to the home inspection price)
  • Lawyer (you don’t want one, but you need one)
  • Deposit (generally around $1000 to show the seller you’re serious)
  • And then all miscellaneous repairs and purchases that need to happen before you can actually move in.

All together if you are looking at a $200,000 house you are going to need somewhere around $30,000 on the low end of things just to get started.

Where are you looking to buy? There are quite a few things to consider as far as this goes. You want to know crime rate and school ratings, especially if you plan on starting a family. You want to know how far you will have to travel for work, groceries, entertainment, etc. You definitely need to know how much property and school taxes will be in that area, and they can fluctuate quite a bit from town to town.

Can you afford the house? Can you really afford the house? Work out the monthly expenses – include taxes, include all utilities keeping in mind that for a house they are significantly more expensive than a much smaller apartment, and consider the fact that if something breaks you need the money to fix it because you don’t have a landlord anymore.

These are just a few things to keep in mind when you think about purchasing your first home. The biggest advice I can offer is to consult your friends and family who have already been there, done that and most importantly – take their advice seriously. A home is not a whim purchase, it is an investment in your future and one that you want to do the right way rather than the quick way.