Buying a house is one of the biggest decision you’re going to make in your life.
It is important to have a clear understanding of what buying a house entails.
First of all, it costs a lot of money. That’s why it shouldn’t be taken as something that comes easy to anyone, even if you have a pretty solid financial life.
Houses are a tricky thing, regardless of the financial background and income you might have, because a house is also a very important asset in your life and the lives of your family.
Furthermore, buying a house is a major life decision, and those are never easy to make.
It doesn’t come down to just spending money on something you want to have. A house is not just a purchase; it’s a decision.
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When you’re buying, let’s say, an expensive laptop or TV, you’re not thinking of it the same way you would think about a house.
No matter how expensive the laptop or TV is, a house outweighs it in terms of importance.
You might spend $150,000 on a new car, a boat, and a tour around the world, and you can buy a house for the same money.
Although you’ll spend the same amount of money, buying a house is still something that goes beyond the money you’ve spent.
It simply gets to you on a more psychological level.
The psychology behind buying a house
From the perspective of someone who is buying his or her first house, buying a house is something that becomes more than a simple purchase. Houses are historically bound to the notions of family, settlement, and life decisions. Once you buy a house, you’re deciding on a place to spend the rest of your life. Of course, this doesn’t have to necessarily be true, but that’s beside the point here.
Houses are inanimate objects that become homesjust through our ideas. The psychological associations we make towards the idea of our homes is one of the strongest feelings we are able to experience.
Studies show that even those who are not necessarily bound to the idea of homes and settling down still respond positively to the idea of having a space where they can feel comfortable and at ease. Even the most vigorous adventurers who travel the world 10 times in a row are longing for a place that they might not necessarily call “home,” although it is exactly that.
This basic human need to settle down in terms of a safe location is as natural as breathing and escaping danger. This is why those who do not “believe” in settling down in any one given place, usually are searching for something that could still fulfill that basic human need. And there’s nothing wrong with this. If traveling is something that fulfills you, then go for it. Nobody’s saying that’s a wrong way to live your life. However, this just makes the case for houses (homes) being a basic human need even stronger.
What this means for first-time house buyers is that they’re standing in front of a decision that is as crucial as every other basic need he or she has as a human being; and that’s not something anyone can take lightly. This is also the reason why buying a house for the first time is an extremely stressful experience for the individuals involved and should be thought through incredibly well in order to avoid unnecessary negative experiences.
What to consider before buying a house?
According to the psychology behind buying a house, you should, first of all, make assessments of your life-goals. Is buying a house the thing you should do at this point in your life? If you think it is, then you need to understand why that is. Are you going to share that house with family members? Are they all on board with the decision to buy? Where do you see yourself in five to ten years’ time?
All of these question need to be answered before making any decision of this magnitude. There are other ones that need answers too. Pragmatic ones like financing and mortgages, to which we’ll get in a minute. First of all you need to go over the basics regarding the decision itself. To make it a bit more streamlined, we’ve compiled a list of the most important aspects of that decision below.
Do you have a location in mind?
If you’re thinking of buying a house, you’ve probably already decided in what town the house will be located. You’ve probably already thought about the area of town you want your dream house to be in. This question is extremely important as it entails a number of other important questions. If you live in the town now, you’ve probably thought of staying in that specific town for a reason. This reason might be family and friends, a steady job, and other things that simply make the town you’ve chosen a place where you want to spend the rest of your life. So, if you have an answer to this first question, you’ve probably already answered a number of other questions without even knowing it.
What needs does the house have to meet?
OK, you’ve decided on a location. The town is perfect for reasons you made clear to yourself. You have a future there, and a house is just the thing that is missing to make you feel even more complete in your current surroundings. That house looks like…?
OK, what popped into your head when you readthat last question?
Sometimes, simply letting your imagination do the thinking for you can take you a long way. If you had a mental image of the house you want to buy, then analyze it and determine what the house is composed of. If this kind of visualization doesn’t work for you, you have to find the answer to this question the old-fashioned way—by thinking.
Making sure the house meets all of your requirements is the next step in your quest to buy a house. You probably already know what you and your family need in terms of space, number of rooms, and whether or not you want to have a garden. It is crucial to explore your needs and the features the house should have in order to meet your long-term needs before going out and buying a house. Look at some of the offers in the area you want to buy. Compare and do some scouting yourself. If you’re looking at a house on the internet, be sure to visit the house.
How much can you spend?
Although we’re going to talk about financing your new house later on, having a clear understanding of how much you can spend is extremely important at this stage of the process. It is always tempting to go a bit over the top with the limit you set for yourself, and that’s alright. The trick is to have another higher limit that should be the red zone of your budget.
Let’s say, for example, you set your limit to $150,000, and you find a perfect house that costs $180,000. All the other houses you’ve been considering don’t come even close to the features this house has. However, it’s $30,000 over your limit. You do a bit refinancing, talk to your mortgage lender, go over the process of paying with the rest of your family, and you come to the conclusion that spending the additional $30,000 is something worth doing. And that’s great. If you can go as high as $180,000 without making a dent in your budget, it’s not a bad idea.
However, after deciding that, you’ve opened some new possibilities on the market for yourself. Suddenly you start looking at other houses in your new price range. And there are better houses you can get for that price. You continue looking and come across a house that’s a lot better than the last one. The problem is that this new, better house costs $190,000. That’s just $10,000 more than the amended budget you decided on. So you start rationalizing again. The additional $10,000 is about $30 more a month with a 30-year mortgage. You rationalize that it is not that big of a deal.
You may already see where this kind of rationalizing is going. Your budget limit is constantly increasing. In psychology, this is called the value-to-cost effect. People have a stronger incentive to buy if they’re getting more value for less cost. If the last house you’re looking at is just $10,000 above your limit, but you feel that you’re getting something that is worth more than $10,000 can buy, you start to reconsider your options. This is not necessary a bad thing. This kind of thinking can lead to getting a better deal on the purchase you want to make. However, it also might keep you from staying under the limit you set for yourself. That’s why it’s important to set a number of different limits.
You could, for example, have a green limit that’s up to $150,000, an orange limit from $150,000 to $175,000, and a red limit from $175,000 to $180,000. This is of course just an example of how you can keep yourself and your money out of the harm’s way of psychological fallacies when buying a house (or anything else).
Is everybody else on board with your decision?
One very important aspect of buying a house is thinking about the rest of the family. You should not impose this kind of big decision on other family members. If your partner has something to add to the conversation, listen to him or her. Even if they’re not involving themselves in the decision, you should ask for their opinion. This is good not only for the partnership, but also for you as you can share the burden of responsibility, and that’s exactly what a partner is there for.
If you find yourself in a tough place during the decision-making, communicate your indecisiveness to you partner and everything might get a lot clearer to you in a matter of minutes.
How to finance a house purchase
Until this point, we talked a lot about some of the psychological and family aspects when planning to buy a house. Now let’s talk about the pragmatic aspects on how to finance such a big purchase.
You’ve decided on a location, you decided on a house, and you’ve thought about all the things the new house has to represent to you and your family. Now all you need is the money. If you have the money ready, make an offer to the seller, sign a contract and … congratulations, you’re a new home owner.
If only it could be so easy. Sure, if you’re wealthy enough, you might think that buying a house is just another purchase on your daily shopping list.
Unfortunately, the vast majority of us don’t have that kind of luxury. For most of us, mortgages are the only way to buy a house.
So, before you make the payment to the seller, you’ll have to think about a few other things regarding your finances. Just like in the section before, we’ve tried to break this down into a few important steps that should help any first-time home buyer.
Choose a home
You’ve probably already done this. But now it’s time to get other people involved to. If you have a lawyer who will help you in the process of buying your house, you should explain to him every step of the process that led to the decision to choose this particular house. If the lawyer agrees that this is the best possible solution for you and your family, he or she can start drawing up the paperwork.
If you’re representing yourself, you have to educate yourself about the process. Don’t worry, any lender you contact will be more than happy to take on your case. Especially if you have a good credit score. Which leads us to your credit score.
You have to make sure your credit score is high enough
Before contacting a lender, you should check your credit score. If your credit score is less than 700 (FICO credit score), you should consider repairing your credit score before applying for a mortgage.
The reason for this is simple. Every time you apply for a mortgage, the lender is going to request your credit score from the credit agency. This will cause our score to drop by a few points every time they do it. However, if you request a so-called soft analysis for yourself, your credit score will stay unchanged.
In order to get a good interest rate on your mortgage, your credit score must be in good shape. Look at your credit score, and see what can be done to boost it a bit before applying for the mortgage. Sometimes a little work can get you a long way in terms of mortgage interest rates for your new house.
Get smart about your financing options
Here’s the deal. First time homebuyers with a good credit score can get a lot of help from the government and their financial institutions. Even if you don’t have the standard 20 percent down payment, you can get help with that. That’s why looking at all of your financial options in terms of mortgages is crucial forfirst-time homebuyers. Do your research and learn about the mortgage payment structure. You might be surprised what you can get out of the loan you’re applying for if you meet the criteria the lenders and government are setting.
Find a real-estate agent and make an offer
This is very important if you’re a first-time homebuyer. Real estate agents are crucial in advising you with regards to the offer you make for the house you want to buy. Of course, what they tell you is not binding in any way. The conversation between home buyer and home seller may go back and forth for a while, but the real estate agent is there to help create a deal that’s acceptable for everyone. Once a deal is reached, you enter the phase in the house buying process that’s called escrow.
Use the transition period wisely
Once the deal between buyer and seller in made, the seller agrees to take the house off of the market so you can inspect it. This transition period is called escrow and should be used by the home buyer to inspect the house for possible flaws, quality, or safety risks. If you’re not satisfied with the house after the inspection, you can take the deal off the table and get your deposit back, then start the house hunting process from the beginning again. In the event you find flaws with the house, but you still want to buy it, you can consider negotiating the price so the flaws can be repaired by you once you become the home owner. This, however, should be after you consult with a professional who can give you an estimate on the costs of those repairs. Or you can request the seller make repairs before closing the sale.
If you find that the house meets all the quality standards you desire, you can move on to close the deal.
Finish the paperwork and move in
Once everything is in place and you are satisfied with the agreement with the house seller, the paperwork can be finished, and you can move into the new house with your family. This is the moment every first-time home buyer is waiting for. Now you have a place of your own; you have a mortgage you are able to pay in a steady fashion, and it should be smooth sailing from here.
One of the more frequent mistakes first-time home buyers make is thinking that buying the house is the last step towards owning a house. This is understandable if you’re new to the concept of owning property. If you grew up in a home owned by your parents, you might already be aware of the responsibilities that owning a house entails.
Maintenance is something that has to become a part of your daily routine. And we’re not talking here just about aesthetic touch-ups you do so you can keep up with the Joneses next door. No, we’re talking about real maintenance of the house so it doesn’t crumble under your ownership. Regular repairs and maintenance are a major part of owning a house. You should be aware that spending your money on a house doesn’t end with the purchase;it begins there. Ignoring this tip can lead to a drop of the value of your house and can hinder you getting the desired price for your house if you decide to sell it at some point in the future.
In this overview, we tried to help first-time homebuyers make sense of the process of buying a house. We tried to show what it entails not only from a financial point of view, but also from a psychological one. Buying a house is in close ties with enabling an existence, and that’s not something you can put a number or a value on. However, without the financial knowledge involved in buying a house, there wouldn’t be much of a point in talking about it just from a psychological point of view either.
Hopefully, this overview will bring those two point of views closer to each other, creating a more coherent understanding of what buying a house (especially if it is for the first time) really means. If you keep your financial decisions pragmatic and don’t let the psychology of buying negatively impact your decisions, you’re off to a good start in your adventure of buying your first home.