In recent years, first-time homebuyers have accounted for about 40% to 50% of sales in a particular year, according to data analysis from the Federal Reserve Bank of New York. If you think you’re ready to join them, great!
But before you start dropping in on open houses and researching walkability scores, find time for some introspection, says real estate broker Ryan Serhant, star of the Bravo television network shows “Million Dollar Listing New York” and “Sell It Like Serhant.”
“Should you buy? You’re also able to rent, and it could be possible to rent until you save up to buy something that you’re going to hold onto for a little while,” Serhant tells Grow. “That’s exactly what I did.”
If you feel that you’re ready to buy, here are four questions he suggests you ask yourself.
1. What can I (actually) afford?
Calculating your budget, or what you can really afford, is perhaps the single most important step you can take before searching for a home. And the price of the property is only the start—you need to consider all the new housing-related bills you’ll be paying on a monthly basis, including your mortgage payment, home insurance costs, potential homeowners’ association fees, and taxes. (More on taxes below.)
Most experts recommend that you shouldn’t spend more than 30% of your income on all housing-related costs.
“A lot of people do it backwards. They don’t even think about what they can afford,” says Serhant. “Know what you can actually spend, and then go shopping within your means.”
For guidance, speak with a financial advisor or other professional. And remember: Just because the bank preapproves you for a certain amount doesn’t mean that’s what you have to spend. Choose a number you’re comfortable with.
2. What type of property should I buy?
You may have always dreamed of a large, sprawling ranch-style house, for example, or a compact condo downtown in a bustling city. Now that you’re serious about making an investment, though, think about what you actually want now, why you want it, and whether you’ll still want it after a few years.
Some people may enjoy living in the city but, after time passes, they’re ready for peace and quiet. Or your family grows and suddenly that one-bedroom feels awfully cramped. Think ahead and consider what you might need in the future.
Ideally, experts say, you should look for a property that fits your needs for at least the next five years. Otherwise, the transaction costs around buying and selling could outweigh any financial benefits of homeownership.
3. Did I consider property taxes?
The old saying that “Nothing is certain except for death and taxes” holds especially true for homeowners. State and local property taxes can cost you thousands of dollars each year.
The average state property tax bill was $1,556 in 2016, according to the Tax Foundation, with the most expensive states clustered in the Northeast. In some cities, such as Washington, D.C., property taxes add up to more than $3,500 per year. Local taxes can boost those totals even higher.
“Property taxes are a massive cost,” says Serhant. “In places that have really expensive taxes, those [homes] are tough to sell.”
Factor in taxes when calculating your budget and thinking about where you’d like to live: One town could be substantially cheaper than its neighbors. Take a look at the property tax bills for homes you’re considering, and check the news to see if there are any big property tax hikes or reassessments in the works for that area.
4. What about repairs, renovations, and utilities?
Serhant says that another expense many first-time homebuyers don’t anticipate is the cost of repairs and renovations. While you may be able to negotiate for a price reduction if a house needs, say, a new roof, even cosmetic fixes and customizations can add up quickly.
And be prepared for when things break—because things are going to break.
This can lead to buyer’s remorse for some U.S. homeowners: Millennial buyers cite the costs associated with home maintenance as the top reason they have regrets about their purchase. To protect yourself, experts often recommend setting aside roughly 1% of your home’s purchase price as your annual budget for maintenance and repair expenses.
Likewise, be sure to consider utility costs. Water, electricity, and other services aren’t free, and the average American homeowner pays around $2,000 annually on them. To avoid that unpleasant surprise, before you put in an offer on a home, ask to see copies of recent utility bills.
More from Grow:
June 15, 2019