How the hell do you buy a house?

[Brian]

Check your credit score at http://www.annualcreditreport.com (If you live in the US or its territories... your profile doesn't say.)

On those reports, you can also find sources of debt that you've forgotten about (like old credit accounts) so you can close them.

As far as how good is good? 650+ should be enough to get a mortgage, but 750+ will get you lower rates.

 

[farmkid]

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.

While what you say is generally true, it isn't always. I just bought a house a few months ago after renting for many years while in graduate school. I know I'll be here for three years, but I hope to stay here permanently. I looked into renting before buying, but found I couldn't afford to rent. My mortgage (+property tax and insurance) is about $950/month (30 year fixed). I looked into renting, but found there were very few options large enough for my family (wife, five kids) and those options started at about $1200/month, which is beyond my budget. It doesn't make sense, but nevertheless it's true. After running the numbers and figuring in closing costs, selling costs, upkeep, etc., I found that with no market change, I would be slightly ahead to buy and then sell in 3 years than to rent for 3 years. Now, of course I'm taking the risk that the housing market won't tank again in the next three years, and I accept that. In my case, though, as I said before, I couldn't afford the rent. Also, my kids have really needed and back yard for years and have been suffering because they couldn't get outside when they needed to. For us it made sense to buy, even though it didn't fit the conventional wisdom. I admit my situation was outside the norm.

As for the paying it off as fast as possible, here's what I was told by a financial professor from whom I just took a short class on retirement planning: He was asked by a student in the class that very question and he said there are two answers, the financial answer and the peace of mind answer. Financially, you are better off not paying the mortgage off early if you put that extra money into an IRA or something where it will earn a return greater than your interest on the loan. That's not hard to do with the low mortgage rates of today. If you can invest it at a greater return than your mortgage interest rate, you are even further ahead to invest it instead of paying your mortgage off. The other answer is that it feels good to be out of debt. For some people, that peace of mind has a greater value than the extra interest you would earn by investing the money instead.

I guess my point is that the conventional advice is a good place to start, but everyone needs to look at their own situation, do some calculations, and decide what is the right answer for them.

 

[Deckerd]

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.

The house prices won't be affected. They're stable at the moment and a lot closer to what they should be than they were two years ago, when they were grossly overpriced. The market is dependent on mortgages and they are on the increase, no matter who gets in.

 

[Chaos Descending]

^^ 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.

It really depends on the sale price and the interest rates involved. Sure, it CAN work out to under $100/month if you're buying a home for $120,000 and 5% and putting down $20,000, but what if you're buying a home for $200,000 and 6.5%?

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

In some parts of the country that's not a realistic option, unless you want to live in a 40 year old house next to a meth lab. Some states have required that an HOA be formed in all new developments for at least the last 15 to 20 years.

 

[RoJoHen]

^^ 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.

It really depends on the sale price and the interest rates involved. Sure, it CAN work out to under $100/month if you're buying a home for $120,000 and 5% and putting down $20,000, but what if you're buying a home for $200,000 and 6.5%?

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

In some parts of the country that's not a realistic option, unless you want to live in a 40 year old house next to a meth lab.

Most of the houses in the area that I'm looking are 100+ years old, with an average price of about $95,000.

And there are probably meth labs in the area.

 

[Franklin]

Oh, one other thing, be preapproved for your loan before you start looking. This is so a buyer knows you are serious when you make an offer. Others may have mentioned that above, but just in case they didn't, there you go.

As far as the good faith money on a contract goes, it's generally not a lot of money. The amount is really going to depend on the norms of the market. Maybe $1000 on a $200,000 home. That money will be held by the seller's agent, then it will go towards the sale. Never give the good faith check directly to the seller.

Bear in mind, too, that state laws vary, but your deposit money can be refunded to you without question if you opt out of the contract within a short period of time after putting it down (say two weeks or so). Your realtor will know the law in your area.
Since most contracts are contingent on a home inspection and appraisal within ten days, this gives you plenty of time to back out of a contract and keep your deposit if either the inspection or appraisal turns out unsatisfactory. Then, too, you get your deposit back if negotiations break down over inspection issues. In other words, don't get hung up on losing good faith money. You'll most likely get it back if you have a legitimate reason to back out of the contract. Be tough in this area. Buyers have the leverage right now.

As far as your student loans go, as long as you've been making your payments on time, that shouldn't really hurt you in any major way. It's actually a good thing to have some debt, and show that you are handling it responsibly.
It's excessive debt as a proportion of your income that's the problem. Or, a history of not paying bills on time. And even these won't keep you from getting a mortgage. You'll just get a crappy rate. So put off buying that new car and taking that trip to Cancun until after you buy your house.

Oh, and I screwed something up a bit in my other post. Realtor's fees can be negotiated, but since you'rethe buyer, your realtor will be paid by the seller at closing (and the seller will pay closing costs -- all you'll need at closing is a check from your mortgage holder for the price of the house). You shouldn't have to pay your realtor out of pocket, even if you don't buy a house using him. Still, it's a good idea to ask them how they are going to be compensated.

 

[Chaos Descending]

^^ 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.

It really depends on the sale price and the interest rates involved. Sure, it CAN work out to under $100/month if you're buying a home for $120,000 and 5% and putting down $20,000, but what if you're buying a home for $200,000 and 6.5%?

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

In some parts of the country that's not a realistic option, unless you want to live in a 40 year old house next to a meth lab.

Most of the houses in the area that I'm looking are 100+ years old, with an average price of about $95,000.

And there are probably meth labs in the area.

100+ years old is intriguing. It sounds bad, but properly maintained, age of the house is a non-issue.

And of course, these days EVERY neighborhood has a meth lab, now that I really think about it.

 

[propita]

You're getting great advice!

Expected time of residence is so important! As posted, insufficient time = insufficient equity. And with how the market is, it's likely the only equity you'll have is your down payment.

Location matters because, while you can paint and remodel a house, it's highly unlikely you're going to up and move it elsewhere.

Money. Yes, have as much as possible down, but remember that there are some things you're going to have to do when you move in, so try to have a few thousand for that. If there's anything left over from that, pay down the principal. If you ever have "extra" money (maybe instead of starbucks), pay down the principal.

Don't believe realtors telling you that you can afford "just a little more." Take the advice of not over-buying a house that you can't really afford.

Make sure purchase is contingent on a house inspection (by a good inspector) and on obtaining adequate home insurance. If you can't get the house insured, you're pretty screwed--and who wants to find that out after it's yours?

Hubby and I bought our house 7 years ago with 10% down, 80% 30yr 1st mortgage, and 10% 15yr 2d mortgage. 5 years ago, we refinanced, combining the 2 mortgages into a single 20yr mortgage. We're 1/4 of the way paid on that and will likely stay in the house another 15 years. We'll pay down the mortgage a bit after we're done with the higher-interest-rate/no-tax-break student loans. We'll worry about moving later, unless we suddenly come into money before that. Yeah.

 

[RoJoHen]

I actually prefer older houses just because they tend to be a lot more unique. Newer houses these days all look the same to me. My soon-to-be landlord actually makes his living by buying old houses and flipping them for profit. He does an awesome job fixing them up. Without looking at the listing, you'd never know they were as old as they are.

 

[RoJoHen]

You're getting great advice!

I really am! Thanks, everybody!

 

[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.

It really depends on the sale price and the interest rates involved. Sure, it CAN work out to under $100/month if you're buying a home for $120,000 and 5% and putting down $20,000, but what if you're buying a home for $200,000 and 6.5%?

IIRC, he's in Iowa, so we can forget the overpriced California market.

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

In some parts of the country that's not a realistic option, unless you want to live in a 40 year old house next to a meth lab. Some states have required that an HOA be formed in all new developments for at least the last 15 to 20 years.

Bullshit. Methlabs are as prevalent in suburbia as anywhere. Some house I'm looking at right now were built in the 1940's. Historic neighborhoods tend to have better residents.

 

[RoJoHen]

IIRC, he's in Iowa, so we can forget the overpriced California market.

On the Illinois/Iowa border, actually, so I could end up in either state depending on what I find.

But yeah...houses are cheap!

 

[Lindley]

I lived in a house built in 1802 for the first 18 years of my life. It was a fairly solid place for the most part.

Bullshit. Methlabs are as prevalent in suburbia as anywhere.

A few years ago, some tennants started running a cabin rented from my mother as a meth lab. (The DEA busted them.) On a mountainside in Vermont.

The things really can show up anywhere.

 

[Scout101]

Unless I'm mistaking you with someone else, seems like a terrible idea. Correct me if I'm wrong, but you used to be a bartender, then moved recently to do physical training stuff, and are now planning to move back again to tend bar because the other job didn't work out and you were going broke?

What ties you to the other location, other than having lived there a little while before your last move? Buy a house, you're stuck at least a decade, on average.

What kind of money do you have to put down? Thought you quit your job and were moving back because you weren't making it with that job, so seems unlikely you have much built up. On top of that, what kind of money do you make as a bartender, kinda makes a difference on how much you can buy. After car, any loans/debt, food, expenses, and utilities, what do you have to put in? How reliable is that number?

Other than "wanting" one, anything at all that points towards why this would be a good idea, and not a massive burden?

 

[RoJoHen]

What ties you to the other location, other than having lived there a little while before your last move? Buy a house, you're stuck at least a decade, on average.

All of my friends. Godchildren. The cost-of-living is absurdly low.

What kind of money do you have to put down? Thought you quit your job and were moving back because you weren't making it with that job, so seems unlikely you have much built up.

This is the main reason I am going to wait at least a year, so I can get more saved up. I know I don't want to do it unless I can afford a decent down payment. I know I'm not going to do it right now, but now that I've decided that I eventually want to do it, I want to get myself as prepared as possible.

On top of that, what kind of money do you make as a bartender, kinda makes a difference on how much you can buy. After car, any loans/debt, food, expenses, and utilities, what do you have to put in? How reliable is that number?

I think you'd be surprised how much money a full-time bartender can actually make. I mean, I'm already paying for all those things, plus rent, and I am still able to save money AND have money to go out and have fun.

Other than "wanting" one, anything at all that points towards why this would be a good idea, and not a massive burden?

Aside from the initial down payment, a mortgage payment wouldn't really cost me much more than I am already paying in rent.

 

[Chaos Descending]

Bullshit. Methlabs are as prevalent in suburbia as anywhere.

1. Offhand figure of speech in any case.
2. Ubiquity of meth labs already covered in Post #27.

 

[John Picard]

Oh, people keep pushing a home inspection. Unless home inspectors are required to be licensed in your area, be wary as inspectors can be as different as night and day. Some might be very thorough while others just give a cursory glance, and it is possible that should problems arise down the road you won't be able to seek recourse.

If you're handy (as it seems you are) do it yourself. Arm yourself with a flashlight and a notepad and get dirty. Inspect under the sinks for signs of repair/flooding; move furniture that could be hiding stains (BTDT); examine the DOM on the HVAC system; move appliances (like the refrigerator); get in the attic and inspect the roof; check the electrical box -- I'm talking sit down in your present domicile and perform a room-by-room observation and make notes of what to examine. Oh, run the tub and then flush the toilet to get an idea of the plumbing system. Make note if the electrical outlets are up to code (GFCI in the kitchen & bath), two prong w/ ground at all other receptacles. Believe it or not, there are houses up there still wired for 1960. If the house has a basement, nose around

 

[Holdfast]

There's already been a lot of decent and lengthy advice in the thread, so I won't offer anything remote comprehensive.

I would just say that a house in itself is a very inefficient investment as realising the capital gains accrued from house price increases is difficult. You can make some money on it if you let out a room to a lodger (the lodger thus subsidising the purchase), but in terms of the long-term capital increases, you either need to sell it (in which case you need to either downsize to crystallise a gain, or you're still stuck with needing to pay another mortgage or rent). You need a second - or more - property to make real money from housing.

Buying your own house is not about making money but about making retirement cheaper by having shelter without having to pay for it through a monthly rental bill, and benefiting from the falling value of the loan over time through inflation, as you pay it off. It's worth deciding if this equation makes sense to your personal finances.

Personally, I'm very glad to be buying a place with a mortgage on my own property (and in particular the kind of mortgage I'm on - one that tracks Bank of England base rates by a fixed percentage and also offsets against my savings). But I don't really consider my own house an investment (I do have a second property for that).

 

[RoJoHen]

You need a second - or more - property to make real money from housing.

One of the awesome things about the area I'm moving to is that there are a lot of colleges in the area, and as such there is a huge market for rental properties. My junior and senior years of college were spent living in two houses that my friends and I rented.

I'm actually considering, one day down the road, buying a second house and renting it to college students in the area (but I need to buy a house for myself first!).

 

[JiNX-01]

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.

My advice: Get an agent and a pre-approved mortage. When figuring what you can handle for a mortgage payment, factor in the certainty that escrow payments will increase as taxes and insurance costs rise.

LOCATION LOCATION LOCATION: Pick a community/neighborhood that isn't going to be a nightmare in commuting (read: paying for gas, wear on your car). You also want to be reasonably close to a commercial district so you have plenty of services nearby.

Give your real estate agent as clear a picture of what you're looking for as possible. Consider the features you want in a home: Basement or slab? (If you're going to be living in the north, avoid a house with a crawl space; freezing pipes=bad (based on experience). Do you want a serviceable attic? Gas heat or oil? Gas stove or electric? Garage? Deck? Master suite? If you're not a fan of yard work, go for a smaller yard.

One warning (actually based on experience): Talk to your prospective agent about what s/he will be doing for you. I didn't shop around, and I ended up with the Worst Real Estate Agent Ever. He would call me up and give me an address to go take a look at. One of the houses was occupied. The sellers' agent told me I was supposed to have an agent with me whenever I went to see a house. I was mortified. The sellers' agent had to share her commission with the . I don't know how she felt about it, but I was outraged.

ETA: Regarding the inspection. Ask among your friends who own houses if they can recommend an inspector. If you do find an inspector ask for the names of previous customers you can contact. Ask them whether the inspector missed problems that should have been cited.

My "inspector" checked the windows in the house I was buying but didn't bother to check the exterior storm windows. Not one of them would close all the way. Lots of heat loss because plastic only goes so far as insulation (and I couldn't afford to replace 8 windows in my house in time for winter).