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Being a First Time Homebuyer
Tejs
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So, I'm a single, 25 year old Male and I want to buy a house. According to demographics, only 9% of homebuyers were single males, compared to 21% bought by single females (the rest being couples), which I find odd, since everyone says buying a house is good financial sense. However, I'm incredibly overwhelmed right now about the entire homebuying process, and the cost of a lot of this stuff makes me sick.
So, any advice for being smart about this? I'm currently looking at houses with a realtor, and I've been approved for a housing loan for quite a bit (although I won't be purchasing a house near that much). What kind of gotcha's can I look forward to? For example, I got an 'estimate' for the total home buying experience, and with a 10K down payment, their estimate eventually assumed I'd be paying 17K out of pocket for the total closing costs. What the hell? How does that work?
What's the timeline look like? I find a house, and then what all has to happen? I know there is stuff about appraisals, inspections, etc. For the homeowners among us, did you have any regrets?
While universally a positive financial move (paying a mortgage is better than paying rent), the loss of liquid funds in the short term seems scary to me. The math usually points out you need to live in your house for about 8-10 years for it to become financially superior to normal renting. How is your experience?
EDIT: I'm also in Texas, so if anyone knows any resources specific to me, or if there are any kind of tax credits, rebates, etc I should know about that would be good too. Or resources where I can read about them.
So, any advice for being smart about this? I'm currently looking at houses with a realtor, and I've been approved for a housing loan for quite a bit (although I won't be purchasing a house near that much). What kind of gotcha's can I look forward to? For example, I got an 'estimate' for the total home buying experience, and with a 10K down payment, their estimate eventually assumed I'd be paying 17K out of pocket for the total closing costs. What the hell? How does that work?
What's the timeline look like? I find a house, and then what all has to happen? I know there is stuff about appraisals, inspections, etc. For the homeowners among us, did you have any regrets?
While universally a positive financial move (paying a mortgage is better than paying rent), the loss of liquid funds in the short term seems scary to me. The math usually points out you need to live in your house for about 8-10 years for it to become financially superior to normal renting. How is your experience?
EDIT: I'm also in Texas, so if anyone knows any resources specific to me, or if there are any kind of tax credits, rebates, etc I should know about that would be good too. Or resources where I can read about them.
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A lot of people are in mortgages right now where they owe more than they could likely sell the house for. In that case, renting is a better deal. But if you're in it for the long haul, and you did your homework, the market should recover, but it's going to take a lot longer than it used to. So scares aside, yes, home buying is a fun and exciting experience, and if you *do* do your homework you can come away with a nice home and a good investment.
10% down is pretty much the minimum, 20% is better. If you're looking to put 10k down, then yeah, expect to pay another 5+ in fees, repairs, inspections, etc. Get multiple inspections on places you're very serious about. If you miss a place because you were cautious, they'll be other houses.
Do some research in your own, so the Realtor can better focus their efforts. Be honest with them, but make sure they work; you're their customer.
Last bit; research not only the property but those around it, the neighborhood, the schools, the Census/demographic data, etc. E.g, are there other developments (residential and commercial) in the area? What's the chance they will be finished? What/Who are they trying to attract?
edit: Timeline. Really depends. Usually a few weeks if there's any bargaining/negotiation going on, plus time to do inspection(s). If there's no one living in it, sometimes less. Good link from Dunadan019. Zillow has apps (http://www.zillow.com/mobile/) you can locate properties around you.
17K is about right.
I find that the remax sites are very helpful when looking for whats available geographically instead of searching through some generic listing service with a link to some map.
http://www.remaxtexas.com/
click on new homes and plug in the zip code.
then if you want to look closer at a specific property, grab the MLS number and do a search.
also,
know how many bedrooms you want. 1-2 is probably the most you need.
know the number of bathrooms you want. 1 is probably fine.
know how big a property you want. the bigger the house and yard, the more you need to do to maintain it.
know what general area you want to look in. 15 minutes from work? near your friends/family?
are you willing to look at condos and townhouses (they may have a larger payment but you won't have to maintain the property either).
5% down is the minimum for a regular mortgage.
3% down is the minimum for a FHA mortgage (takes longer and may be denied)
anywhere between 5% down and 20% down will have to buy private mortgage insurace (PMI) at about .5% of the mortgage total.
don't pay for multiple inspections, go and see it with your agent more than once.
It is good that you are aware that the lender's estimate is inflated. I don't know what kind of voodoo they used to calculate affordability but in most cases it isn't affordable at all. When we bought we knew the price range we were comfortable with and stuck with it even though the lender said we could afford roughly twice that.
When you consider what you can afford make sure you consider real estate taxes (most mortgages this is an extra monthly amount made with your mortgage payment that is held in escrow), home-owners insurance and if you are making less than a 20% down-payment, mortgage insurance. Also consider that you will now be responsible for repairs to the house (and there will be repairs) and utilities (if they were included in your rent).
It is a good idea to get a home inspection (my state required it) but be aware that they are not perfect and some problems simply cannot be discovered by visual inspection. He can't go through the house ripping down walls so you don't completely know what the electrical, plumbing, insulation, etc look like. A good inspector will pick up on visible signs that hidden things may be amiss but you never know until you buy the house and look for yourself. If you know some people that bought a house recently see who they used and if they were happy with them. Our guy was highly recommended and pointed a lot of minor things out, but there were some major problems lurking in our house that are impossible to find without tearing down walls.
I recommend not watching shows like Holmes on Homes while you are looking at houses. You will begin to think they EVERY house is like that show and just make yourself sad and want to give up on the whole thing.
Anyway, in general owning a house is better than renting in some ways.. and it's much worse than renting in many others. It is by absolutely no means "universally a positive move." Good for you for at least doing a bit of research and realizing you'll need to live in that house for a number of years to make it worthwhile. Just make sure you don't get caught up in the ownership moment, and most certainly do not let anyone talk you into buying or paying for anything you don't need.
Ah, correct. Thanks.
Honestly, we bought at a decent time and still paid probably a bit more than we should have. But the wife and I have no regrets. We love it. We love that its ours. And aside from the exterior (damn HOA's) we can do whatever we want with it. We're looking forward, in fact, to re-doing our entire master bath this summer.
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The main financial benefit of home ownership is being able to deduct your mortgage interest from your taxes - over the first several years (since this is when all of your payments are going to interest) this basically amounts to 18-25% of your yearly payment getting paid back to you (provided you have enough other deductions to make it worth it). The other benefit is the possible long-term appreciation of the home's value, but that's not guaranteed.
At the moment the only rebates/credits for homebuyers that I know of are for energy efficiency (aka solar panel roofs, geothermal heat pumps, etc) and major renovation (which you won't have the capital to do after the down payment).
If you had posted this before getting preapproved (speaking of which, make sure you are pre-approved, not pre-qualified...they sound the same but are very different) and everything, I would've said to get this book. I'm reading it now and it's pretty good (and answers the questions you've asked here).
10K is 5% of a 200K home.
I doubt a 2 bedroom 1 bath home in texas will be more than 200K.
I'm on my second house (the first being the ill-advised short stay mentioned above) and I've never even heard of a conventional loan with less than 10% required, even during the boom years. The lenders we talked to said to forget about conventional loans these days unless we could muster 20%. Where are you finding conventional loans for 5% down?
Oh, and to the OP- don't forget to research and budget for property taxes. They can be a rather unpleasant surprise for first-time homeowners.
I don't know if I'd be able to do it on my own; honestly whenever someone in the fam gets a new property everyone comes over and helps out. Family time has almost always been work project time, its just how we roll.
I guess what I'm trying to say is, there's more than a few ways to up your investment value other than just waiting for the market. If you're good at that kind of thing, you don't have to worry so much. If you just want to lean back and hang out in your place as is, then yes, you'll need to be a lot pickier and you'll be waiting quite some time before you've actually made any kind of return on your investment.
in all honesty, they lied to you.
fannie mae never stopped backing mortgages with as low as 5% down so long as you had mortgage insurance. however, after the crash, PMI was much harder to get but still not bad if you had good credit. the problem was that the banks and financers offering the mortgage wanted you to have more invested so that you wouldn't be able to walk away from your mortgage like some people did who bought right before the housing crisis and then saw the value of their property plummet followed by layoffs and etc. it was mostly an internal policy put inplace by banks to cover their own asses.
I know you can get a conventional mortgage with 5% down because I just got one and I went through the same thing last year with lenders asking for 10% down or more.
I just bought a house with a 10% down payment and paid $7500 in closing costs. Keep in mind that this number includes taxes for the first couple of months, and you usually don't start payments until the start of the third month. I closed earlier this month and my first payment will be due March 1st.
my dad was livid when he found out about that after signing the paperwork to buy this house.
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The place I bought needed some work, but I've been doing remodels since I was 13, so it's manageable. It was a bank-owned property that I got a ridiculously good deal on, too. If you're willing to do the work for it, it's a great way to build a buffer between you and a market that is still falling.
I spent six months finding this place, so getting exactly what you are looking for can take some time. I was picky about finding a place with lots of potential that nobody had messed up too badly already, so your mileage may vary.
Yeah, fuck HOAs. Is that not covered somehow through title insurance?
Doc always has the best advice.
Okay, we're on the same page then. I was thinking there was some magical mortgage underwriter out there taking 5% down without requiring PMI and I was like :shock:
Depending on where you live HOA fees can range from alright to WTF. Definitely ask what's included but odds are if it's more than $100/mo it's a huge ripoff.
For a lot of people, the lower monthly rate lets them buy a house and still save money on the side. Other people use it to get a house they couldn't afford at all on a 15-year term.
Besides the fees, you have to contend with political junk and pettiness that get pretty ridiculous.
Basically, imagine the most petty, underhanded, jerk of a Type-A personality, and you have a good idea of who is going to be running your HOA board.
That's just been my experience with them.
See also:
http://www.thedenverchannel.com/news/10399793/detail.html
http://theweek.com/article/index/104150/top-7-insane-homeowners-association-rules
On top of that, if you're in a condo, you can be forced to pay for things (called an "assessment") that may not even be necessary for your unit. One of my friends had to pay $9,000 to get his back porch repainted, because most of the people in his building didn't take care of theirs, and their paint was peeling. His was fine, but it didn't matter.
By law in most places HOA and condo association bylaws have to be presented x amount of time before closing and signed and noted before closing can happen to protect this very thing.
I had an HOA screw me out of deck space (You had to ROUND THE CORNERS) because the book we got wasn't even correct at the time of signing.
also, in most contracts involvin an HOA or a condo association, the owner has to certify that there aren't any ongoing assessments and if there are, agreeing to pay them for a certain amount of time can be a bargaining chip.
Yeah, they can do some really scary stuff like put a lien on your house aside from just making you repaint when you don't need it. On the bright side they make sure everybody's lawn is cut (they maintain all street-facing landscaping in our neighborhood, which is nice) and keep folks from eating up street parking with boats and RVs, but the dark side is oh so very dark if you get a couple people willing to abuse their responsibilities.
If you're looking in an HOA neighborhood you should request their financial disclosure documents as early in the process as you can. If they're not well-capitalized based on past expenditures, that's a warning sign- either the fee is about to go up or they're going to start throwing around fines to make up the difference. Also be wary of new construction neighborhoods that have an "estimated fee" based on the number of houses that sell. Every house that doesn't sell means you're paying part of their share of the fee until they do.
My realtor told me I should publish my notes cause its everything a noobie will need to know about calculating your costs of buying a house.
― Dr. Seuss, Oh, the Places You'll Go!
One thing I am finding with my home search is that for specific price ranges, I can't find all the criteria I want for the price I want. The big one is garage space; I have two cars and one of the main reasons I want to purchase a house is to actually stick those cars in a personal garage instead of a shared apartment parking area; to be able to wash them whenever I want or do maintenance as I please. The "lower" end spectrum doesn't seem like they have enough space to do what I want (which is to turn my garage into something like this):
Fitting two cars, all the home maintenance supplies, a lawnmower, etc into a small 2 car garage doesn't seem feasible.
On that note, would you guys find upgrading my garage to something like this to be a boon or detractor if I ever wanted to sell? Most garages are just left unpainted now, so it's really cheap to put down some nice mats and paint the walls in a garage to look nice I think. Probably about 1K total for the mats and some paint.
How long did everyone look to find the house for them? To find all the criteria I want, the price is steadily inching upwards, or I might be waiting for a really long time for the perfect deal to come along.
Condos and Townhomes don't really appeal to me much; semantically, it's not much different than living in an apartment to my eyes.
What kind of things can you negotiate with the seller? For example, I know that one house I'll be looking at on saturday is actually overpriced according to the local tax assessment, and that lots of suburban mini mall type development will be coming out that way (wouldn't that raise property values?).
Being single, would you rather buy a small home to start or go with a larger home that can be grown into in the future? Pretty much everything is a 3 bedroom, 2 bathroom house in the area I want to live (it's suburbia, surprise!)
It's kinda exciting to think about home ownership (Even though I hated mowing the lawn when I was living with my parents, it's somehow odd that I feel like mowing my own lawn could be fun). Installing LED faucet lights everywhere. Having my own library space (I read a lot of books). Having a much bigger kitchen to cook with, etc.
Then there is the price associated with all that - some online articles I've read even refer to this roller coaster as an expected and normal response. The excitement at moving to the next step of adulthood and the trepidation at the increased responsibility then. Any tips on dealing with that?
Also be prepared to work at making a house nice, as you usually want to be the crappiest house on the block when you buy (then fix it up). Don't PLAN on any major return on investment for the improvements you make, just make them to improve your life.
As far as what's negotiable - everything. There is literally nothing that's off limits if you get them to agree to a price.
But at the same time it is great, because its yours. Great and stressful actually. Especially for a first time home owner. Unless you are a really handy guy, and used to home repairs and maintenance. You just don't know what you don't know. Buts its cool, things go wrong and you learn and next time you won't let that happen. No home, even new construction, is going to be free from issues.
For example... Did you know that your Central Air system has an air filter in it? Did you know that if you don't replace said air filter on a regular basis it will become clogged and restrict airflow to the system? Did you know that this will result in a viscus cycle of freezing and thawing on the compressor that will cause a steady build up of water in your basement around the system? Well, now you do! That's a freebie for you. Good luck with the rest.
Not exactly quite applicable, basements are practically non-existant in Texas =D
My father is quite handy, and I expect to be learning a lot from phone calls with him.
I would be turned off by all that stuff, but that's me. Depends what is permanent and what you'd take. I would think a coating of that speckled garage paint/epoxy would have more general appeal.
It took us many months because we tried finding a place in the city, but everything was too much or didn't offer what we wanted - a $300k condo with street parking, for example. Learning from that, we were able to narrow down pretty quick once we went out into the burbs. You just have to find out what's critical to you, and what you can compromise on. It sounds like a big garage is important to you, so expand your search from there.
We found that there were 2 categories of houses in the market ( In Southern New Hampshire anyway )
1. Well priced houses in good condition.
2. Poorly priced houses or houses in poor condition (includes most short sales and foreclosures)
Houses is the first group were on the market for less then 3 weeks. Houses in the second group were on the market for ever, with good reason. The second group made up 90% of the inventory outstanding.
Through the process we found 5 houses we liked enough to bid on.
1. Priced too high, owner would not negotiate for a lower price. We backed out
2. Went on the market on Tuesday, sold on Friday our showing was scheduled for Saturday.
3. Short sale, bank took too long to respond to our offer (2 months) we had to back out due to timing issues
4. Went to a showing, loved the house, great price. House sold before we could get back to office to put in a bid.
5. House we bought. Went on the market on Friday afternoon, we bought on Saturday morning.
Other then those 5 houses we liked, we drove by at least 200 houses, and actually went in and toured maybe 100 houses. Its a long process, buying a house is a huge commitment and you need to get the 1 you are looking for. Don't settle for less then you need, but don't have crazy inflated dreams.
The more houses you look at, the more realistic your expectations will become.
That's the first half, then you get to do all the crazy paperwork and cough so-much-money to close the mortgage. Its not as fun a process as i had thought it would be. But I do love my house.
Also, figure out pretty early on if you're looking for a house that's finished (it sounds like that's what Thundyrkatz was looking for), or something you'll have to do some work on to get into good shape.
As has been pointed out in this thread, if you are willing to put in the work, it can be absolutely worth your while to rehab a house. The trick is finding a place in a really good neighborhood that is in need up updates, but hasn't been screwed up by people who don't know what they are doing. The scary part is when they've done something like finish the basement in a half-assed way, which makes you wonder what the wiring and plumbing looks like under the walls.
Here's what's on the list for immediate updates in the place I got, prices are for doing the work myself:
-New kitchen (est. $10k - I'll be coming in well under this due to surfing Craigslist for appliances and materials)
-Replace the rotting deck (est. $5k)
-Replacing the knob and tube wiring throughout the house ($500 or so. It's not tremendously expensive to do yourself, but it's time-consuming and frustrating at times. They had a new 200 amp panel already installed, so that was extremely helpful)
-Install a french door where a big window looking out to the deck used to be (already framed the right size, helpfully. $1000 or so)
-Wall over the existing door that goes out of the kitchen - this will give me more counter space ($500, probably less)
-Add insulation in the attic and wherever else I can ($700 or so)
-Change from a fuel oil furnace to electric central, paying a company to do this ($5000)
-Replace windows with new vinyl ones, also hiring a company to do this ($4000)
-Replacing existing copper plumbing that was installed by someone who had almost no idea of what they were doing, with PEX. It's cheap and easy to run if you have access to the walls/ceiling in the basement. (Figure about $1000 to do it myself)
So I'm looking at spending around $30k right out the door on this house, once you calculate in all the other small expenditures.
And in a year or two, I'm looking at doing another ~$30k remodel to put on a big back bedroom, and add a master bathroom and walk-in closet where the smaller back bedroom is now.
Also, it needs a new roof at some point. It's not a very big house, so it'll probably only cost $6000-$7000 to have someone else put it on. The existing roof can at least last until I'm doing that other remodel.
Did you pay rock bottom prices for this house? That almost sounds farcical about what you wanted VS the house you bought.
Very specific upgrades like this do very little to the overall value of your home and will turn off buyers. You do personal upgrades when you plan on being in the house for a long time and you don't have to worry about selling it quick in the near future.
The house I wanted to buy is exactly the house I bought - I am ready and able to do the work to update the house, and I have the cash available to do so.
I payed about $130k under the median house price in the neighborhood, $85k under the Zillow estimated price, and $22k under the lender-appraised value in the state it was in when I bought it (this almost never happens).
Interesting. I hadn't really thought of that, because I figured most people would appreciate not having just a bland garage. Reading about this online, that seems to be a trap people fall in about home improvements.
While I'd still like to do something like that for my eventual garage, I can see now where people might find it garish.
I think you should make a list of what are your priorities.
For me
Location
Office space
BBQ ready backyard
etc
etc
I am aware that my 10 things I want in a house will not happen, I will have to compromise certain things if the house overall is a good fit for me and deal.
Also see as many houses in different areas without a realtor, learn about different neighborhoods, styles of houses and what its means to live in a 3bed/2bath 600 sq ft house vs 2bed/1bath 900 sq ft house.
Also since the talk is about house maintenance..... does anyone know blog/forums for those who are not a handyman?
If your interested I have formulas to calculate mortgage in CA but its easy to find the formula for your areas.
― Dr. Seuss, Oh, the Places You'll Go!
Oh yea, it's one of the biggest pitfalls with home owners. A lot of people will go crazy with their kitchens or bathrooms and find out that just because they spent $15k on upgrades it won't add $15k to their home or it could lessen the value of it even.
I mean the garage pictured would definitely turn me off and I would instantly be thinking about the cost to reverse it. But if it's cheap enough to reverse you could always repaint it a more neutral colour and remove the mats before you go to sell.