The Family Home-Buying Guide
The economy's improving, but the housing market remains tricky. Avoid a costly mistake—and find the perfect place for your crew.
When my husband and I shopped for our first house two years ago, we fell—hard—for an 1890s-era four-bedroom with a sun-soaked first floor and a white picket fence in the backyard. Our offer was accepted—but then we started to have doubts. The master bedroom was in the attic, a floor above the others. If our girls, ages 3 and 1, had bad dreams, did we really want them climbing steep stairs at 3 a.m.?
When the home inspection revealed multiple areas that needed significant work, we backed out of the deal. Today, we live a few blocks away, in a house that fits our family life perfectly. But it would have been easy to settle for the wrong one—if we'd ignored our gut or felt pressured by the low inventory of available homes in our area.
Faced with today's recovering economy and historically low mortgage rates, parents with young kids are jumping into the housing market. Between 8.3 million to 9.2 million first-time homebuyers were expected to enter the housing market by 2022. Making the switch from renter to owner can be a daunting process for newbies, though. There are numerous potential pitfalls, such as committing to a home you can't truly afford or ending up with a headache that requires costly renovations or repairs.
Before transitioning from renter to buyer it can be helpful to meet with a banker as a first step, to ensure your family is financially prepared to buy. When parents sign up to be a customer with U.S. Bank, for example, they can access the U.S. Bank Mobile App to book appointments with bankers to find the best ways to meet their financial goals. Get started now.
Here are five factors to keep in mind before you take the plunge.
Pre-approval is a smart idea.
Taking this step means you've been tentatively approved for a mortgage of a certain size, giving you a sense of how much you can safely spend on a home. It also shows sellers that you're a serious contender, which can make a difference when you're bidding against other buyers. "There are two main things a seller wants to know about buyers: Are they willing to pay my price and can they close a deal if we agree?" says Dale Taylor, a realtor in Chicago.
Start by using an online home-affordability calculator to determine how much money you can borrow. Then check Bankrate.com for competitive rates in your area. Select a mortgage lender who is easy to reach, happy to answer your questions, and trustworthy (avoid anyone who pushes risky adjustable-rate mortgages). But don't feel committed to him. Once you're ready to proceed with an actual mortgage, call around and compare closing costs and any bonuses or rebates being offered. You might also consider the terms a local bank or a savings and loan offers. Before locking into our mortgage, I found two companies promising incentives worth $1,000. I took these to our initial lender and—boom!—got a discount of $1,100.
Your emotions belong on the back burner.
Colleen Rustad loved her future home in Petaluma, California, at first sight, from the towering pine trees to the sleek kitchen cabinets. Then she and her family moved in. "As I was unpacking on moving day, I realized that the striking design features that caused my heart to skip a beat were going to be hugely impractical to live with," says Rustad.
The lowest kitchen shelf was 6 feet off the ground, which meant she needed a stepladder to reach things and her 5-year-old couldn't retrieve his own plate. While the house's location at the top of a hill seemed appealing initially, it made teaching the kids to roller-skate a truly terrifying experience.
Half of all homeowners have at least one regret about their current home, according to a survey by real-estate site Trulia.com. Don't make a purchase without considering all the angles. You might adore that three-bedroom colonial, but keep looking if it has zero closet space or backs up to a busy highway. You should also be thinking long-term: Will the perfect-for-now layout still work when your kids are teens?
In that same survey, one-third of owners with buyer's remorse wished they'd put more money down or waited until they were in better financial shape. So if you're bidding on a home that's $20,000 out of your price range, don't strain your finances. You'll need to pay back that extra loan with interest. "Many buyers sign up for a mortgage that's higher than they planned," says Greg Cook, a first-time-homebuyer specialist with Platinum Home Mortgage, in Temecula, California. You don't want to live so close to the margin that a temporary money hiccup could prevent you from making your monthly payments.
More home buying tips
You'll be paying more than just a mortgage.
If you're comparing renting with owning, keep in mind the additional expenses you might overlook. You'll also pay real-estate taxes and homeowner's insurance, notes Jeff Chalmers, a senior loan officer with Guaranteed Rate in Franklin, Massachusetts.
Based on where you live, taxes average about 1.1 percent of a property's value per year, according to the Tax Foundation. The annual premium for a homeowner's policy meanwhile averages about $1,477 for about $250,000 in coverage. And don't forget energy costs, which average about $1411 per year, with nearly half of the cost going to heating and cooling.
For Rustad, the sky-high utility costs came as a shock. "I hadn't stopped to think about what it took to heat rooms with 18-foot-high ceilings," she says. "I'm sure the little spiders who spun the impossible-to-reach cobwebs in the corners were very toasty while the kids and I huddled under blankets."
Also don't forget about closing expenses: You need to set aside 2 to 5 percent of the purchase price to cover them. Is it all worth it? Use an online tool such as Realtor.com's Rent vs. Buy Calculator to do the math before deciding. In general, if you plan to stay in a home for less than five years, it's probably best to rent.
An appraisal is not an inspection.
While the bank needs an official appraisal before you close on a home, you should also hire someone to take a closer look. In fact, experts recommend making your contract offer contingent upon a satisfactory home inspection. "In a lot of newer houses, there's a tendency to skip it, but you shouldn't," Cook says. You should get a recommendation from someone other than your agent, and make sure the person has a background in home construction and will bring a skilled eye to the roof, plumbing, and other structural areas. (In some states, an inspection occurs before the contract is signed, while in others, any significant problems revealed may give you the ability to renegotiate or back out of the deal.)
When Julia Isch was shopping for a condo in Largo, Florida, she was pregnant with her first child and in a hurry. So she and her husband declined to hire an outsider. "My father is a civil engineer, so I thought, 'I'll just have him check it over,'" says Isch. A month after closing, she discovered that the electricity and plumbing weren't up to code. The condo company eventually declared bankruptcy, resulting in plummeting property values. "I should have paid the $750 to hire someone knowledgeable," says Isch, whose property has fallen in value by more than half. "Hindsight is 20/20, I guess."
It's vital to read the contract.
This is the biggest purchase of your life, so you shouldn't assume everything's in order. Be sure each item you think should be included with the home—appliances, light fixtures—is specified. "Otherwise, you might move in and find that a chandelier or an appliance is missing," says banker Jeff Chalmers. If you don't understand what you're reading, ask a real-estate lawyer to review the contract. The cost is nothing compared with the potential savings of moving into a house that's everything you expect it to be.
What to consider before buying
4 questions to ask yourself before you buy
1. Does the floor plan fit my family?
If you want to be on the same level as your kids, avoid homes with a main-floor master. Want to be able to spot your toddler at all times? Look for an open floor plan. "One house we liked a lot had steep stairs from the garage to the living area. That wasn't practical for carrying groceries and little kids," says Rebecca Horvath, a mom of three in Johnson City, Tennessee. Consider whether there's ample space for toys. "An indoor play area is key if you live in a cold-weather city," says Michael Corbett, author of Before You Buy!: The Homebuyer's Handbook for Today's Market.
2. How well do I know the neighborhood?
You should make a point of visiting your prospective future residence during commuting hours (to see if the roads are dangerously busy) and at night (are nearby businesses noisy, or is the main drag a ghost town?). Find out if other families with young kids live on the block; otherwise, you could be surrounded by empty nesters. "Also see whether there's a safe place to bike or jog and stroll a baby," suggests Mark Clement, cohost of the radio show My Fix It Up Life.
3. What is the yard like?
Many parents overlook their kids' outdoor needs. Emily Christopher and her husband figured the large deck at their home in Pearl River, New York, would be sufficient. Now that their baby is crawling, they've had to reassess. "The backyard isn't easily accessible, and it won't be safe for my son to play there alone until he's school-age." On the flip side, you need to factor in that a yard takes time and money to maintain. "Proximity to a playground might serve your needs better," says Daniel DiClerico, coauthor of The Just Right Home.
4. Am I satisfied with the schools?
Check the availability and cost of nearby early-learning programs as well as the quality of the zoned public school. But don't stop there. Find out whether your kids would have access to a school bus and how long the ride takes. If you plan to walk, make sure you won't need to cross treacherous thoroughfares, advises Clement. Plan to drive? Try the route at rush hour to gauge the traffic. Your kids (and likely you) will be making 180 round-trips a year, and the school commute can play a large role in your quality of life.