House Buying Tips...

[tooclosetosee]

A home is a place to live first and foremost. It is not an investment. People looking at their homes as investments is the main reason of the economic collapse of 2008. Buying a home as an investment is like buying records as an investment. (I assume that most of you can understand that analogy) Sure, there are some that make money selling/flipping records, but for the most part people just sink more and more money into it. Some people do it because they enjoy the experience and the music, and some do it for some pay day at the end. 

 

I enjoy home ownership. I have bought a home, sold that home, and bought another home. Another couple points to the upkeep/repairs that wasn't mentioned is taxes. Taxes make it so that you never really "own" your home even if you do not have a loan on the home anymore. In some states this isn't a big deal, in others it is a huge deal. So you may think that you are in your forever home only to not be able to afford the taxes in retirement. 

 

The second thing not mentioned is the extra costs that you will spend on your house just because you OWN it. My wife and I spend over $1k a year in landscaping/gardening/flowers on our home that we would not spend if we were renting. Also most people take pride in their home and spend a lot of time and money making it look nice, whereas if you rent then you will not be so inclined to do so. 

 

The rule of thumb like others have mentioned that if you are not planning on staying in the home for at least 5 years, then you are better renting. Definitely do not plan on making money on your home purchase. If you do so, then great, but don't plan on it. 

 

In my situation we bought a small home in spring 2007 right before the housing market took a nose dive. The home was completely remodeled before we bought it, we took excellent care of it and fixed it up a bit and sold it in better condition than when we bought it. We ended up losing money on it when we sold it. Since it was a small house we didn't lose that much money on it and having lived in it for almost 6 years we came out ahead compared to renting. However, since we lost money (approx 5% compared to 2008) on our small house (800sq-ft) in a down market we were able to buy our much bigger/nicer (3500sq-ft) house in the same area for a much bigger bargain (approx 25% compared to 2008) due to that small homes retain their value better in a down market. So in a way you are curbing the housing market when you buy. 

 

Like others said, figure out what you can really afford and still have money leftover so that you are not house poor. Go shop for loans, and then with that budget start looking in neighborhoods that you are interested in. I prefer and suggest that you look at neighborhoods first and then at homes second and not the other way around. 

 

I also second having a good inspector. Ours was provided by our agent and he was fine, but in hindsight, I don't know if he is working harder for your agent to not find problems than he is working for you to find problems. For the most part he found a LOT of stuff. However, there were items that were not done to code that we didn't know were not to code and he didn't even mention. I also asked him about a lot of stuff and he just said "that is not in my scope".

 

Also realtors, very interesting. I really liked ours and would recommend her, but still. 

[Family Friendly Rap God]

As a home owner, I can give you a few words of advice.

1) No offense to any real estate agents here, but real estate agents do not always have your best interests in mind. They are really just glorified salesman in many cases. And other than having the ability to go and unlock lots of houses with their special real estate agent keys/lock boxes, they are almost useless. Unless your real estate agent is your best friend/sibling, you should remain skeptical and cautious when dealing with them. Also, steer away from signing exclusivity contracts with them.

2) Home-ownership can be expensive. My mortgage is cheaper than rent would be for a comparable house, but every year there are home and yard maintenance costs that add up, not to mention the random and inevitable things that break. Hot water heaters, heating and air units, plumbing, electrical, roofing, etc. all can be pricey things to have repaired/replaced, and you never know when something could happen.

3) Home-ownership can be stressful. Half the time I hate my house. You have to spend a lot of time and money maintaining it, and if you do not, you will wish you did because stuff will eventually start to go wrong. It is a constant source of worry, however, it is something that you bought, that you own, so the stress can be very worthwhile.

4) Spend a lot of time scoping out potential houses you want to buy - you need to get a really, really good feel for the neighborhood, even your neighbors, etc. Don't be afraid to speak to the neighbors and ask their opinion of the area. Do some web crime searches. Go by the house/property at various times of the day, in various weather conditions (especially during/after some moderate to heavy rain - you can see if the house has water drainage issues/flooding). If you have kids, or think you might want to have kids, take into account the school district. If you are never going to have kids, then that isn't such a big deal, and you might get a better deal on a house in a crappier shcool district. But be aware that crappy school district also usually equates to lower class living.

5) Find a really great home inspector, ideally someone who is going to find as many things wrong with the house/property as possible. When I bought my first house, I used the real estate agent's recommended inspector. That probably wasn't very wise and it turned out there were a lot of small issues that he never noticed, or bothered to point out that became larger problems later. So you want to find someone who is known for being a bit of a hard ass. You may have to pay out of pocket extra for a good inspector.

Great points! I'm cleaning my credit and saving for a condo myself, so I will save these tips

[thebiglebowski]

Sounds like Harley is really Jaded from a bad experience. Disagree with most of those points.

 

Like TooClose said -- the five year rule of thumb. It's not like you know the outcome of the real estate market, the general economy, everything you will need to spend money on, etc so don't get freaked out by the details (worry about whether every appliance in the house is going to die). The inspection should tell you the quality of the roof, the potential for foundation problems, and any other really big hitters you need to consider when putting up your offer.

 

Your agent is there to help you. They do a lot behind the scenes:

 

http://ohiorealtors.org/consumers/184-tasks-agents-do-for-you/

 

It's not like the timeshare scene in South Park where you can't get away from them and they are constantly pitching you houses that you don't want. You tell them the neighborhood and the price range, they find houses that fit, and you repeat until you find the right one. If you aren't happy with their services, you go elsewhere. You shouldn't need to sign an exclusivity contract on the buyer's side (that might set off a flag). The seller should likely have one -- there is a lot more up front work getting a house on the market than shopping for one, so they need a commitment from the seller.

 

If you aren't buying a house in a neighborhood you already know about (I could tell you what kind of city everyone on the east side of metro detroit is, for example), you can still get a feel for the likelihood of crime pretty much just driving to the house and based on the general feel. I challenge anyone to find a low-income neighborhood without crime or an upper-middle class neighborhood with outrageous crime numbers. No need to be a sleuth trying to track down the 3 month weighted average of crime statistics. If you can afford it, live in a nice neighborhood. If you can't, live someplace decent and sleep comfortably remembering that 99.9% of the world isn't out to rob you. If your choice is a house in the ghetto or not, you probably shouldn't be buying.

 

Overall, just paints a way too negative picture of the whole thing, when it is supposed to be one of the most exciting, positive things of your adult life. Be smart about who you ask to advise you (duh) and be sure you can trust them. Understand the neighborhood. Understand where you see yourself in 10 years. Keep a monetary buffer so that you aren't financially stressed if something breaks and needs replacing. Just good, simple rules that lead to success. You don't have to treat it like the whole world is out to get you and you need to constantly be on defense, though. They aren't.

[thebiglebowski]

i 2nd the advice on getting a quality inspection done.  we bought our place 10 yrs ago when i was a naive 25 year old.  i don't know who picked our inspector, but it was either one of the realtors (and they were both kind of slimy car salesmen types) or it was the seller (but not sure if that was possible).  they basically did the inspection while the electricity was shut off and therefore didn't notice a bunch of the outlets were faulty.  over time, my husband fixed some of them while the electrician who redid our kitchen lighting fixed some others, but i dunno...  it's a basic thing that should've been taken care of by the seller.

 

it's true, there are a lot of expenses involved with owning your own place but i don't really mind it.  i have a bunch of friends who have had to move because the landlords decided to up and sell the property.  personally, i'd hate it if i was told by someone else (rather than coming to the decision myself) that i had to move out of my home.  so there's that.  i also ended up loving the location and neighborhood so much i don't really want to ever move anyway.

 

I had an inspector reschedule because the electricity wasn't on at the house, so he had to come back. Not sure if this is because I bought after you, state law, or something else.

 

Bottom line, though, is that the seller is going to make everything look nice, not point out the faults with a house. An inspector doesn't inspect every circuit. This is just the stuff that goes along with buying and is somewhat expected (unless buying brand new property). The inspector's job is to make sure there isn't anything MAJOR that you need to know about (termites, dead furnace, bad roof, and so on).

[jhook]

Buying a house is a monster pain in the ass.

[thebiglebowski]

I'm at the point where I'm pretty sure I'm going to buy a cheap condo in a couple months.  I'm getting pretty excited about this. 

 

I went through the Pre-Approval process and it was pretty easy you just need copies of current statements for all your accounts, including retirement accounts and 2-3 months of payroll stubs.  The most annoying part for me was where they allow down payment to come from.  I never have a ton of money in my bank accounts so I couldn't say that I was using savings.  I've been selling off some of my records on ebay for a while and have a sizeable chunk of cash building up in there for a down payment and they said that I couldn't use that money as a downpayment.

 

I still go back and forth on what the correct loan for me is.  I like the flexability that a 30 year loan would give me but the quoted interest rate is 4.125%.  The 7 year adjustable makes a ton of sense because I'm looking at places I can pay off in 7-10 years and comes with a interest rate at 2.999%.   The problem with that one is it would really put the pressure on me to get that sucker paid off as close to 7 years, and although that is my goal I don't know if I want that pressure.

 

You write off the interest. So even the 4.1% is more like 3.5%.

 

If you only look at paying off your house, yeah, the ARM makes perfect sense. But paying off your mortgage early is not the secret to financial wealth. With interest rates this low, kinda makes sense to take a longer term loan and try and invest the rest. I believe I can make more than 4% a year (actually, I believe I can do this easily) so why pay extra towards the house than I have to?

 

It might swing back the other way if/when rates swing back up to 6-8%+, but for right now, I say just take the "good debt" and don't obsess about trying to pay it off as quick as possible. Have some fun with your money without having to worry about hammering the mortgage before the rate adjusts.

[avery]

I had an inspector reschedule because the electricity wasn't on at the house, so he had to come back. Not sure if this is because I bought after you, state law, or something else.

 

Bottom line, though, is that the seller is going to make everything look nice, not point out the faults with a house. An inspector doesn't inspect every circuit. This is just the stuff that goes along with buying and is somewhat expected (unless buying brand new property). The inspector's job is to make sure there isn't anything MAJOR that you need to know about (termites, dead furnace, bad roof, and so on).

 

ya, i mean there was nothing majorly wrong with the house.  all the houses around here need to get sprayed regardless because we're by the ocean and they said something about the moisture in the air on the coast attracts termites.  i feel like electricity is such a basic thing to catch though.  our furnace did have issues as well.  it clicked loudly the entire time it was on so we had to get that fixed.  that was never pointed out by the inspector.  anyway, i would've preferred to have the inspector come back later, but i was young, didn't know any better and demand was high in the neighborhood so i didn't want to lose the place to someone else.  in fact, we found the listing ourselves.  saw it the minute it hit the MLS basically and put our bid in within a week.  we only used our realtor to help us communicate with the seller.  he was otherwise kind of useless because all he wanted to do was show us condos (not what i wanted) and tried to get us approved for a mortgage through some company he worked with (we got a better loan & interest rate through our bank).

 

i had originally wanted to live closer to the downtown area, but now looking back on it, i'm glad we didn't.  parking during the summer is terrible and so is dealing with the drunk out of towners that come down to party.  (i live in huntington beach where there were riots during the US open of surfing).  instead, i live on the outskirts of downtown so we're still close but on a more private street.  so i'm pretty happy overall with how things turned out despite the things i had to dump my money on to fix.  i don't even think our situation was typical, but who knows...  when we bought our home, it was near the height of the housing boom.  our neighbor at the time bought up a bunch of houses in the neighborhood for way below what they were worth.  the story to our property was some old lady lived in it and when she got put in a nursing facility, her son sold it to my neighbor for $250K.  then my neighbor flipped it to us for $550K.  he flipped his own house to my current neighbor for $730K.  and the house on the other side of me for $750K.  he "fixed them up" at the bare minimum so that he could capitalize on profits so there were all these little annoying things that my neighbors and i ended up discovering.  nothing major, but for a house you spend that much on...  it's a bit irksome.  another example is how our fences are made (by him) of this reclaimed rotten wood.  one of them collapsed a few years ago and now we need to replace the rest of it, but that's probably going to be a $5000 job so it's something to save up for.  in any case, like i said, i like the location, the neighbors i have now are awesome and it's got a good school district so i can overlook those things.  if i could've been more demanding at the point of purchase though, i think we could've had our old house flipper take care of a few more things before sale that i wouldn't still be taking care of now.

[thebiglebowski]

I understand that housing markets are drastically different, but I don't really understand how people in California can even make it work. Is your average middle class worker bringing in $250k a year? Or do people there just put a huge portion of their income into housing?

 

Just to give perspective, middle class here in MI is probably $50-70k and your average house for that person is going to be in that $100-150k range. 2 or 3 years salary goes into a house.

[afireinside7444]

Just be prepared for the maintaince reality. We got a steal on a 1997 2150 sqft colonial on 2.5 acres in Mich for $174k but weve put a roof on (7k had a great deal normally 11k+) New high eff furnace and AC (5.5k cousin has his own HVAC busniess deal) added alot of insulation in attics and spray foam (1.3k) added a 160 sqft shed (3k) windows are in the process of going in (13.5k) I am currently finishing my basement now will be close to 8k or so when done..... then refinishing the deck, landscapeing ect ect......

[avery]

I understand that housing markets are drastically different, but I don't really understand how people in California can even make it work. Is your average middle class worker bringing in $250k a year? Or do people there just put a huge portion of their income into housing?

 

Just to give perspective, middle class here in MI is probably $50-70k and your average house for that person is going to be in that $100-150k range. 2 or 3 years salary goes into a house.

 

nah, we definitely don't make $250K and i don't think that's typical of the middle class here.  you definitely can't find a place for $150K here unless you get super lucky or buy something off in the desert.  i think you can find a place in the $300s further inland but if you want to live by the coast, the minimum where i live is in the high $400s (and it's been rising lately to high $500s).

 

when we bought the place we brought in a combined income of $150K, which didn't take into account my husband's billable hours bonuses as an attorney.  i quit my job 8 yrs ago and then became a stay at home mom but we haven't had too much trouble money-wise because we don't really live outside our means.  like i'm able to pay our bills in full every month and i was still able to pay off my car and student loans so the only debt we have is the mortgage and my husband's law school loan (which isn't so bad because they all have low rates on them and we never miss a payment on those either).  one thing that we don't get to do though is a house project whenever we feel like it.  it's a process that takes a while to save up for and we probably don't get to travel as often as i'd like.

 

my neighbors spent $200K more on their places (because they've got bigger 2 story homes whereas ours is single story) and they make it work by having housemates who pay rent or working longer hours.  i do have a bunch of friends though who have had to walk away and/or put their place up for short sale because they overextended themselves. 

 

 

oh ya, and i have some friends in MI (suburb of detroit) who stared at me like i was crazy when i said our house was only 1000 sq ft.  it blows my mind that you can probably get a much larger home over there for $150K.  they probably would've looked at me like i was crazier if they knew it was at $550/sq ft, but oh well...  i don't need a lot of space, but there's nothing like driving by the ocean at a moment's notice to turn a crappy day into a pleasant one.

[maneatingcow]

You write off the interest. So even the 4.1% is more like 3.5%.

 

If you only look at paying off your house, yeah, the ARM makes perfect sense. But paying off your mortgage early is not the secret to financial wealth. With interest rates this low, kinda makes sense to take a longer term loan and try and invest the rest. I believe I can make more than 4% a year (actually, I believe I can do this easily) so why pay extra towards the house than I have to?

 

It might swing back the other way if/when rates swing back up to 6-8%+, but for right now, I say just take the "good debt" and don't obsess about trying to pay it off as quick as possible. Have some fun with your money without having to worry about hammering the mortgage before the rate adjusts.

 

I completely understand what your saying.  However my gameplan is not your typical setup.  I plan on paying the place off in 10 years then basically letting my parents live their with only having to cover the taxes and Condo dues. 

 

That is why I plan on trying to hammer down payments as quickly as possible

 

On top of that I'm not looking for the secret to financial wealth.  I'll never be a rich man and I don't have a desire to be one.  I do want to make sure that I don't make the mistakes that my parents and brother made though. 

[thebiglebowski]

I completely understand what your saying. However my gameplan is not your typical setup. I plan on paying the place off in 10 years then basically letting my parents live their with only having to cover the taxes and Condo dues.

That is why I plan on trying to hammer down payments as quickly as possible

On top of that I'm not looking for the secret to financial wealth. I'll never be a rich man and I don't have a desire to be one. I do want to make sure that I don't make the mistakes that my parents and brother made though.

It isn't necessary to have the house paid off in 10 years for you to do this. You can just continue to make the mortgage payments from 10 years on and will make more money in the long run.

Your call though.

[stranaspank]

I got pre-approval a month or so ago.  My credit and income are great, but I only have about $2k to cash to put down, so I'll be getting a second loan to cover the downpayment.  I think the FHA loan was quoted with a interest rate in the mid 3's.  Some of my biggest concerns are timing it so that I have the keys to house but not too much overlap with my current lease, which is up at the end of August.  Richmond is currently in a seller's market and there are some areas where houses are on the market for less than a week.  I'll be able to get something around $140k to have mortgage payments comparable to the my current rent, which isn't too bad for the neighborhoods I'm looking in.  I'm looking toward some areas that are starting to gentrify.  

 

Anyway, I really like the mortgage guy I got pre-approval from, and my realtor would be an old co-worker friend.  But how many banks/etc did you go to to compare rates and offers?  There's also a few programs that offer grants if you buy in developing neighborhoods that I need to research.  A couple co-workers bought last year and each got $15k downpayment if they promised to stay in the area for five years.  That kind of down payment could really boost my spending limit.  So many numbers to deal with.

 

Anything specific I should have the inspector look at?  Hidden secret issues?  I hate watching those shows on HGTV because it seems like the always find water leakage or mold behind the walls, and you don't know about that stuff until you start ripping stuff up.

[8ight]

I pay $900 a month now just to rent a damn studio apartment. I'm pretty sure I could be paying a full monthly mortgage payment, no? Because that's what I'm aiming for; a house where my monthly payment (not including utilities) is $900 at most. I know there are many factors, but that'd set me at roughly a $100,000 house, correct? Cause that's sort of what I've been eyeballing and believe I'd be comfortable with. 

 

I still need to save up a lot as I'm really hoping to at least make a 10% downpayment, but I suppose FHA loans could be an option. Thing is, I'm not that desperate to get a house RIGHT NOW, so I'm thinking I'd be better off waiting and getting more saved up. 

[jhook]

I pay $1,464.95 a month for my mortgage. That's with taxes and my water bill included.

[jhook]

My loan was an FDA loan. I had to buy in what the state considered rural and had to promise not to build a business on my property. It was 0% down and my interest rate is in the low 3's.

[BuzzersonKillwell]

Stranas,

 

We went to about 4 different lenders locally, we found the rates comparable. We had the option to get a 1st time home buyers deal which helped us out significantly, you may find some stuff out their as well. That other regional deal you mentioned could help as well so make sure to take advantage of offers that work for you. Your realtor friend should probably help. 

 

Unless you put 20% down you are probably looking at PMI but your mortgage originator should be able to factor that in. Same with taxes, but I assume they've walked you through that. You will need more cash for closing and lawyers and all that so make sure to save that up as well. 

[BuzzersonKillwell]

I pay $900 a month now just to rent a damn studio apartment. I'm pretty sure I could be paying a full monthly mortgage payment, no? Because that's what I'm aiming for; a house where my monthly payment (not including utilities) is $900 at most. I know there are many factors, but that'd set me at roughly a $100,000 house, correct? Cause that's sort of what I've been eyeballing and believe I'd be comfortable with. 

 

I still need to save up a lot as I'm really hoping to at least make a 10% downpayment, but I suppose FHA loans could be an option. Thing is, I'm not that desperate to get a house RIGHT NOW, so I'm thinking I'd be better off waiting and getting more saved up. 

 

 

It depends on a lot of factors. Loan terms and taxes but I would think if you can find a home for 100,000 you can probably get a loan with taxes escrowed for around $900. 

[thebiglebowski]

I don't understand the idea of taking a loan to cover a downpayment. Tell the seller that you want them to cover all closing costs and bid an extra $2k or so.

Then the money is being borrowed at the lower interest rate on the mortgage.

[stl_ben]

If you sell on eBay and are using any of that income make sure it is well documented.  I sold off some stuff when I bought my house and it was a pain getting the paperwork in line for the loan.  Don't know if that is common or if our lender just didn't understand eBay.

[thebiglebowski]

Unless you are talking about multiple thousands of dollars in sales, just keep eBay out of the picture. Keep it in paypal, then use it to furnish the house after the loan goes through. Don't make things more complicated than they need to be. The income justification process is complicated enough as it is.

Pre-collapse, I think all they needed was your credit report and two pay stubs!

[maneatingcow]

If you sell on eBay and are using any of that income make sure it is well documented.  I sold off some stuff when I bought my house and it was a pain getting the paperwork in line for the loan.  Don't know if that is common or if our lender just didn't understand eBay.

 

Glad to hear this so at least I know it wasn't just my credit union that was so weird about this.

[stl_ben]

It was probably like 2,000 as I needed the cash for the down payment.

[BuzzersonKillwell]

I think you are right Lebowski, we bought pre-collapse and I wash able to use around 10k of the 20k I had saved in my checking account as a down payment. They didn't require anymore documentation nor did they seem to give a shit where the money came from. 

[distinctlydustin]

We sign and get our keys tomorrow. I have a lot of work to do on it, but I'm happy none the less.*

 

*I'll have a music "man cave."