If you plan to go house hunting and buying this 2023, you’re not alone; 28 million Americans plan to do the same. But, unfortunately, many of these surveyed shoppers lack proper home-buying know-how.
Since you don’t want to be part of that group, you must know what to look for when purchasing a house. Otherwise, you may be unsuccessful in your hunt. Even worse, you may buy an overpriced property or one that’s full of hidden problems or damages.
To that end, we created this post to help you become a savvier home buyer. So read on to discover the essential factors when hunting for a new abode.
1. Your Maximum Budget Limit
To buy a house you’d love to live in, you must set a price limit from the get-go to ensure you can afford it. This can also help you avoid looking at houses you might fall in love with but can’t buy because they’re too pricey.
You can determine how much you can afford by implementing the 28/36 budgeting rule. It involves limiting your total housing costs to 28% or less of your gross monthly income (GMI). It also states that you should spend no over 36% of your GMI on total debt repayments.
Suppose your GMI is $7,000, and you have no other debt. In this case, the most you should spend on housing, including monthly mortgage payments, is $1,960 (28% of $7,000). That amount is still within the 36% debt limit of $2,520 (36% of $7,000).
If you have existing debts or plan to take on one or more soon, you must aim for a smaller mortgage repayment amount. That way, your budget can still accommodate the payments you must make for your other loans.
2. The Housing Market Temperature
When the real estate market is “hot,” it usually indicates a low home inventory and a higher buyer demand. With fewer houses to choose from, more shoppers compete against each other. That makes a “hot” market a seller’s market, as sellers can demand higher prices.
On the other hand, as a shopper, you can negotiate a lower price if you buy a home in a cold market. Also known as a buyer’s market, this is when more homes are available than buyers. With fewer shoppers and more housing options, sellers tend to agree to a lower price.
3. Your Creditworthiness
Your creditworthiness measures your eligibility for a loan, such as a mortgage. The lower your risk of defaulting on your debts, the more creditworthy you are. And the higher your creditworthiness, the likelier you are to qualify for new credit.
Lenders often base borrowers’ creditworthiness on their credit scores and credit reports. They favor borrowers with good to excellent credit scores (e.g., 670 to over 800). Conversely, they don’t like negative report items like late payments and delinquent accounts.
Now, suppose you have excellent credit scores and reports. Unfortunately, this doesn’t mean they automatically show up as such. So, your score may show up lower than it is, or negative items may be on your report even if they shouldn’t.
The above can happen because errors occur in credit scoring and reporting. An example is when Equifax sent lenders inaccurate credit scores in the spring of 2022. This affected millions of U.S. consumers, potentially harming their creditworthiness.
So while you’re house hunting (or even before you do), check your credit score and report. Your credit card providers can help you determine your accurate credit scores.
You can also request a free copy of your credit report from Equifax, Experian, and TransUnion. If it shows any mistake, dispute it with the reporting bureau ASAP.
4. Your Non-Negotiables
Non-negotiables are the home characteristics you need and can be challenging to alter. These include the property’s location and its lot size, to name a few. These are permanent, so you can no longer change them after your house purchase.
An excellent example of a non-negotiable is a home located in a safe and secure neighborhood. This is especially vital, as many Americans say their area’s crime rate is increasing. Nearly 3 in 4 U.S. adults also believe more crimes will occur in 2023.
You should also factor in the flood hazards of your soon-to-be home location. For example, consider buying a house in Zone C or X, as these areas are outside the Special Flood Hazard Area (SFHA). Thus, they have the lowest possibility of getting inundated.
But if you can’t buy outside the SFHA, then be sure to get appropriate flood coverage. For instance, if you’re buying a home in Zone VE, then purchase adequate VE flood insurance.
5. Your Wants
Once you’ve determined your non-negotiables, it’s time to consider your wants. Think of these as the features you find desirable or “nice to have,” so a house that boasts them gets bonus points. They’re primarily dependent on your preferences, but some typical examples include the following:
- A large yard
- An extra bedroom or two
- Multiple bathrooms, plus a bathtub
- A garage
- An outdoor living space, such as a patio or deck
When you finish your list, assign each item a number, such as “1” being the most desirable. Then, as you house hunt, start with your non-negotiables and ensure you’ve ticked them all off first. Afterward, check the items in your “wants” list that each property features.
6. The Home’s Existing State
The median age of U.S. homes is 39 years. While many of these properties are already in use, some are for sale.
Remember: The older a house is, the likelier its components need repairs. Some parts and systems may even already need replacements.
So when house hunting, pay close attention to the integrity and state of each of your prospects. The last thing you want is to buy a house with a failing roof, foundation, plumbing, or electrical system.
A professional home inspection is the best way to determine a home’s state and integrity. Many sellers proactively do this, but to be sure, you can hire an inspector who’d work for you.
Time to Do Some House Hunting
Now you know that your maximum budget limit is the first thing to consider when house hunting. After that, factor in the market temperature and your creditworthiness, needs, and wants. Finally, ensure the home you’ll buy is in top condition through the help of an inspector.
Consider all those factors, and you can likely buy an affordable home you’ll love.
Did you enjoy reading this guide? If so, we have more crucial home-buying tactics to share. For starters, check out our post discussing tips for finding and buying the perfect home.