How the hell do you buy a house?

[RoJoHen]

I have made the decision to buy a house, but I don't know the first thing about doing it. My experience with real estate is limited to watching random shows on HGTV (usually with people with absurdly large budgets that I will probably never have).

In all likelihood I won't really be starting anything until next year. But in that time, I want to do all I can to make sure I'm ready to buy a house (and hope that Obama brings back the homebuyer tax credit ).

Now, I realize most of you are going to say, "Talk to a professional," but I was just wondering if anybody here has any advice or stories from when you first bought a house.

 

[Kelso]

My advice: Buy a house that you'll still be able to afford when your life goes to shit.

(Says Kelso, whose life just went to shit)

 

[RoJoHen]

Ouch. Sorry, buddy.

I do know a friend who bought a house about 3 months before her life went to shit. She had to take a different job out of the area and move in with her parents, but she's still stuck paying her mortgage because nobody will buy her house.

 

[Deckerd]

The bigger deposit you have the more options you will have. So if you aren't doing it already, start saving with a vengeance. Sound advice for free.

 

[RoJoHen]

That is one of the reasons I'm planning to wait another year before I do anything. I want to save up more money for a bigger down payment.

 

[JonathonWally]

Buy a condo or a townhouse. That's what I want, I hate all this maintenance that goes along with owning a home. After this big storm we just had this weekend, I have to call my home owners insurance company, then find a roofer, then a fence guy... it all sucks. Than a landscaper for spring clean-up and fix my yard.

I long for the easy life.

 

[RoJoHen]

Buy a condo or a townhouse. That's what I want, I hate all this maintenance that goes along with owning a home. After this big storm we just had this weekend, I have to call my home owners insurance company, then find a roofer, then a fence guy... it all sucks. Than a landscaper for spring clean-up and fix my yard.

I long for the easy life.

Nah, that's one of the reasons I want a house. I love doing all that kind of work myself. I might even buy a crappy house just so I can fix it up.

 

[Bloodwhiner]

Go to several banks first and find out how much of a loan you will qualify for. See what the payments will be and be sure your comfortable with that amount. Be sure to find out if the price includes property taxes and insurance. If not those will cost a few thousand every year.

Decide what you would LIKE in a home (fireplace, big kitchen, pool, etc) and what you MUST have (# of bedrooms, baths, single story, location, etc).

Then go to a real estate agent and ask to see some homes are in that price range. Now you will have an idea of what you can actually get for your money. That will tell you if you need to change your expectations or save more or jump now.

Be careful with serious fixer-uppers, costs can go astronomical in a heartbeat. Likewise longterm foreclosed homes in warm climates like Florida may have mold issues. That gets very costly to fix.

 

[Chaos Descending]

Never, ever, buy the first house you "fall in love with" without moving on and deliberately looking at a few more. If you look at several more houses and still like the other one more, then get that one.

Put at least 20% down (if you can) to avoid paying PMI, and stay away from things like 80/20 loans unless you absolutely do not have the cash to put 20% down.

Absolutely, positively, have a home inspection done by a reputable, qualified, licensed home inspection service. I cannot stress this enough. I made the tragic mistake of blowing that off and I keep running into things that are wrong with my home that would have been spotted while they were still under warranty from the builder, but now no longer are. With said inspection in hand, make sure that the builder fixes every last discrepancy that the inspector finds. They usually have to do this within 7 days of closing.

Good deals can be had on a forclosure home, but beware, disgruntled former home owners are often not very kind at all to the home that they are losing, and what seems like a good deal could actually be quite costly. If you don't mind a "fixer upper" due to you yourself being very handy, then substantial deals can be had. If you ARE a handyman at heart, don't be afraid to look past a home "as is" in favor of "what it WILL be".

 

[John Picard]

I have made the decision to buy a house, but I don't know the first thing about doing it. My experience with real estate is limited to watching random shows on HGTV (usually with people with absurdly large budgets that I will probably never have).

In all likelihood I won't really be starting anything until next year. But in that time, I want to do all I can to make sure I'm ready to buy a house (and hope that Obama brings back the homebuyer tax credit ).

Now, I realize most of you are going to say, "Talk to a professional," but I was just wondering if anybody here has any advice or stories from when you first bought a house.

Buy a condo or a townhouse. That's what I want, I hate all this maintenance that goes along with owning a home. After this big storm we just had this weekend, I have to call my home owners insurance company, then find a roofer, then a fence guy... it all sucks. Than a landscaper for spring clean-up and fix my yard.

I long for the easy life.

Nah, that's one of the reasons I want a house. I love doing all that kind of work myself. I might even buy a crappy house just so I can fix it up.

Normally, JW and I don't see eye-to-eye; however, in this case I have to agree with him 100% and also point out that you're reasons are purely emotional. You seem to be buying into the so-called American Dream where everyone (allegedly) aspires to own a house with the picket fence. Before the housing bubble burst (this most recent one), people on this board scoffed when I pointed out that renting is not evil and that home ownership is not for everyone.

Contrary to what you may think, there are many, many caveats, the first of which are location, location, and finally, location. You've already moved twice in a 12 months period, correct? Are you absolutely certain that you will be staying put for the next 10+ years, because statistic will show that you're going to move *at least* two more times in the next 10 years. If you buy a house with a 30 year note (aka financial suicide) and then have to move in 5 years, you'll basically have pissed in the wind with zero financial gain, and in which case you'd have been better off renting. Then, take into account such issues as maintenance (roofing repair/replacement, HVAC maintenance/replacement, annual taxes, other household repairs, annual insurance) and suddenly, you're paycheck is shrinking.

Are you willing to buy a fixer-upper, work on it, and then possibly flip it down the road so that you can move to something more upscale, or do you think you'd stay put?

The one following advice I can give you is, A) have 20-25% for a down payment, B) 15-year note (NO ARMs), C) a mortgage of NO MORE THAN 25% of your paycheck, D) bi-weekly payments to pay it off faster. Sorry, but the so-called tax advantage of deducting mortgage interest is a joke. Pay the house off early and then sock away money for retirement. Even 1.5% interest earned is better than no interest.

It's admirable you want a house, but be certain it's for the right reasons. A condo, townhouse, or even continued renting are not something to be scorned.

 

[TheBrew]

Yeah, doing maintenance sucks. My washer broke down and I need to get my windows replaced; just as easy as calling my property manager and it gets fixed in a few days at no extra cost. Even had a mold problem that they took care of.

 

[RoJoHen]

I don't mind renting as a rule, but I'm getting tired of it. One of the reasons I am considering this is because I KNOW that I am ready to settle down. I'm moving back to where I used to live. I was there for 6 years, and I've developed a life there. The only reason I moved away recently was to try something new, and in doing so I realized I was perfectly happy where I had been (which is the reason I'm moving back).

Renting is annoying because I am tired of having little or no control over my place of residence. I want to paint the walls. I want to install new flooring. I want a basement that I can finish and turn into a mancave! I want a yard that I can landscape!

I'm also really tired of my neighbors being on the other side of my wall. I want my own place.

 

[John Picard]

I don't mind renting as a rule, but I'm getting tired of it. One of the reasons I am considering this is because I KNOW that I am ready to settle down. I'm moving back to where I used to live. I was there for 6 years, and I've developed a life there. The only reason I moved away recently was to try something new, and in doing so I realized I was perfectly happy where I had been (which is the reason I'm moving back).

Renting is annoying because I am tired of having little or no control over my place of residence. I want to paint the walls. I want to install new flooring. I want a basement that I can finish and turn into a mancave! I want a yard that I can landscape!

I'm also really tired of my neighbors being on the other side of my wall. I want my own place.

Understood. If you honestly can say, "Yep, I'm firmly planted here" then that would be one for the Plus column. The worst time to buy is also the best time to buy, which is between March and September. It's the best, because people are planning moves and are listing their houses. It's bad, because of the same reason, which also means you are going to be competing with other buyers. I would highly suggest you spend the next year saving for the down payment, determining where you want to live (which will mean a lot), and also how much of a mortgage you can handle. Again, I will refer back to people who pooh-pooh'd me before the bubble when I posed questions like, "What if you lose your job? How do you pay your bills?" Now that the Great Recession has really hit hard, people are being smacked with reality. Pay your bills or lose your house. I will tell you from experience that living in a house being rehabbed sucks major ass. I'm trying to gear up and find someplace to rent so I can move everything out of my house so I can finish the interior and then list it. Also, don't get the largest mortgage you can afford. Be conservative with your money and remember Murphy's Law. Been there, done that, read the book, and own the fucking t-shirt.

 

[Brian]

What Chaos Descending said.

About the mortgage insurance (PMI)... it's not required that you put 20% down, but you should if you can. If you can't, you'll be paying some amount of PMI each month. If you do, pay close attention and when your principal is paid down by 20% (on a 30-year mortgage, that can take more than 10 years, believe it or not!), call the mortgage company and tell them to remove the PMI and they will. They should do it automatically, but they don't always do it.

Home inspection cannot be stressed highly enough. But you don't have to have them fix every single thing. You can also use those things to negotiate a lower price, if you're willing to take the fixing of them on as your responsibility.

Get a fixed-rate mortgage. Don't fall for these variable rate, inflating messes. That's what has put the economy in such a state and people in homes they cannot possibly afford. If rates fall in the future, you can always easily refinance (and shave years off your mortgage in the process).

A couple of lessons I learned the hard way and are not things you must do, but I wish I had done. If you're in a region where termites thrive, go for concrete block construction over wood-frame. Environmental concerns have really lessened the kind of ground treatment builders can do before construction. As a result, homes built since the 80's are much more prone to termite damage than older ones. Also, my home has a septic tank, and I wish it had city sewer. With septic, you have to worry about tree roots, aging drain fields, getting the tank pumped periodically. I'd much rather just pay a monthly sewer bill and not have to worry about it.

Find a realtor who you like and is responsive and understands your needs and desires. If you don't feel comfortable with them, find another one. They don't get paid until the sale closes, so the whole finding a house for you thing is really just a job interview. If they don't do it to your satisfaction, move on.

And go down to your property appraiser's office and look at the 100-year flood plain. Make sure the house you're buying is not in it.

 

[Franklin]

My wife and I have bought and sold four houses during our marriage. Here's my advice:
-- If you want a house, get a house. As the recent housing market has shown, this isn't necessarily an investment. Don't get buyer's remorse three months after you move into a condo or townhouse and still feel like you're in an apartment. A good house won't cost that much more than a condo or townhouse in most markets. And, if you can't budget maintenance into the equation, then maybe you shouldn't be thinking of buying yet.
-- If you want to fantasize a bit right now, go to realtor.com and type in the zip code for the area in which you want to live (and surrounding zip codes). See what's available there right now in the price range you're looking at and with the options you want.
-- Bear in mind the rule of thumb for what you can afford (and what kind of mortgage you can get) is your house payment should not be over 28% of your gross monthly income.
-- Don't be duped by mortgage deals. Go with the safest one you can get, with a fixed interest rate. Don't necessarily be worried about it being a 30-year loan unless you plan to grow old in this house. Most people get in trouble because they use creative financing to buy more house than they could really afford.
-- Get your personal credit as clean as you can get it months before applying for mortgages. Don't worry about small credit card balances. Just don't be carrying a lot of debt.
-- Interview realtors and go with a reputable firm. This is very important. Find someone with experience and someone you can get along with.
-- Bear in mind a realtor's rate is sometimes negotiable.
-- Make it clear to your realtor what you're looking for, but trust them to show you options you may not have thougt of.
-- If you're a first-time buyer, your agent should be able to tell you about things out there that may aid you.
-- Try to make a 20% downpayment on the home as a minimum. That's hard for first-time buyers, but you won't have to buy mortgage insurance. If you can't do 20%, get as close as you can.
-- A $20,000 difference between the price of two houses may sound like a lot, but it isn't when payments are figured out over a 30-year mortgage. If the $20,000 more house is superior to the other, it's probably worth going for even if it's slightly above your upper limit. The difference will be only about $100 to $150 a month more. Again, if the house is truly superior for the price, it may be worth it to adjust your buget for the slightly higher payment.
-- When you put a contract down on a home, bear in mind you can walk away as you wish. Believe me, as our realtor said, the contracts are only paper as he explained to us when we had a buyer walk away. There's always a way out of the contract.
-- Get a home inspection on the house you want, and make the contract contingent on the results of the inspection. In this market, you probably have leverage to get the seller to do a lot of the "fixer-upper" things for you at his expense (or at least at a negotiated discount to you). Back out of any contract if the house is found to have major flaws or the buyer will do nothing to fix what is flawed. No matter how much you loved the house.
-- See as many homes as you can. If your realtor knows you are buying, he or she will be patient with you.
-- Check out how the other homes in an area are being maintained. What kinds of cars do the owners drive? Are there a lot of playsets in the backyards? Are the owners older folks? Is there a "feel" of neighborhood pride?
-- Does the neighborhood have a Homeowers Association? This is a big one. If so, read their terms and be sure you can live with them.

There's proably more, but that's all I can think of off the top of my head. Hope it helps.

 

[John Picard]

^^ The difference between a 30-year and 15-year can work out to under $100/month, yet equity is built faster. IMHO (and experience) a 20-year is pushing it.

I would avoid living anywhere with a Homeowner's Association.

 

[Asbo Zaprudder]

For folks in the UK planning to buy their first house, I would recommend waiting until after the election. If Labour get in again, house prices will collapse later this year when the UK loses its triple A rating and the rest of the economy goes to shit.

 

[RoJoHen]

-- If you want to fantasize a bit right now, go to realtor.com and type in the zip code for the area in which you want to live (and surrounding zip codes). See what's available there right now in the price range you're looking at and with the options you want.

This is one of my problems right now. I've been looking at houses online for the last week or so, and I keep wanting to own them!

-- Get your personal credit as clean as you can get it months before applying for mortgages. Don't worry about small credit card balances. Just don't be carrying a lot of debt.

This is something I'm concerned with. I have quite a bit of debt from student loans.

-- Get a home inspection on the house you want, and make the contract contingent on the results of the inspection. In this market, you probably have leverage to get the seller to do a lot of the "fixer-upper" things for you at his expense (or at least at a negotiated discount to you).

One thing I've noticed (and have been a bit surprised by) is how much renovation these houses have had. They all have brand new everything! They are definitely being prepped to sell.

 

[Brian]

Regarding putting down a contract... Yes, you can walk away from them, but you'll often have to put down some "good faith money" or an "earnest deposit", to show your seriousness in buying the home, and as an incentive for the seller to not entertain any other offers while you're inspecting/thinking. If you walk away from it, you forfeit that money to the seller.

Regarding improving your personal credit... If you have more than two major credit cards, closing some of those accounts will help your credit score. Even if you have no balance on a card, the full credit limit is counted as a liability, because you can go out at any time and charge up to that. I made that mistake in my youth. I had four or five major credit cards with nothing charged on them and thought, "Boy, my credit is great, since I have $75,000 in available credit." I was informed by a new car dealer, "No, your potential debt is great! Get rid of those things."

If you luck out like I did, your buying agent will also be the selling agent, and the agent fees can be cut in half. I found the home I wanted just after the owner's contract with their selling agent had expired. When I told my buying agent to look into the home, she found that they had no sales agent. She signed on with them as their sales agent and saved me some dough.

 

[Yeoman Randi]

Roger, don't know if anyone suggested this yet. But make sure you hire an independant inspector to come and give the house a once over before you sign anything. He'll inspect the plumbing, wiring, foundation, roof, yadda yadda, to let you know if the house is as good as it looks. This can save you thousands of dollars in repairs and much agita down the road. Good luck!