I want to buy a home

Omeks

I'm at a point in my life where I've lived with my parents for most of my life. After college I stayed with them in order to save up funds rather than rent a place, but I finally feel like I've saved up enough funds to where I can buy a home and comfortably afford payments. I'm getting help from friends about looking around places, and my parents are helping too, but I thought I'd check in here too to see what kind of advice I might get.

Right now, my plan is to find a place and move in sometime in the new year. So that gives me the rest of October, November, and December to prepare. My some of what I want to do right now is to:

-Setup a tentative budget in Excel, asking around and seeing how much utilities, home taxes, etc. might be.
-Ask for a raise at work when my annual review comes around.
-Stock up on non-perishable items. I actually did this a little today, buying a ton of toothpaste, body wash, etc.
-Setup a meeting at my credit union (for starters) and see what I can afford, what my credit score is, and other good stuff.

Right now I'm looking to get at least a two bedroom house that I can rent out a room to, though I wouldn't mind a three bedroom. I'd like something in the low $100,000s. Any advice is surely appreciated.

matt has a problem

Where do you live? Or, where are you planning to buy a house?

MichaelLC

Umm... I wouldn't worry too much about toothpaste - that's just more you're going to have to move.

So there's the purchase price, plus taxes, fees, etc. for maybe another $5k or more. Then there's the yearly property tax which is usually rolled into your mortgage payment. Then possible Homeowners' Association dues if the community has one. Plus any repairs/maintenance costs. So yeah, definitely get a budget plan going. How much can you put down?

I would look up my credit report and score on my own as well. Report is free, score is like $10-15. Only get it from http://www.annualcreditreport.com. Know what you can afford before you set foot inside a bank or credit union, which sounds like what you're doing, so that's good.

Take a look at http://www.zillow.com. Does $100k for two-bedroom sound reasonable? Homes here in Chicago are still going for $200k for two bedrooms; and that's in the burbs. Some (decent) town homes are going for around 150k.

Figgy

Keep resale value in mind. A two-bedroom is going to be a lot harder to sale than a three.

Dunadan019

you don't need to stock up on non-perishables, you can buy those after you buy your house.

make a budget, exaggerate on the numbers to adjust for price increases and don't forget to add in money for saving. figure out what the most you would want to pay for housing is and then aim to pay no more than 75% of that. your actual housing cost will include things that you don't know what to budget for yet like repairs, maitenence and additional taxes.

remember, you need to have a downpayment of atleast about 5% of the agreed upon house value and another 3-8K or so for closing.

first step is to check your credit report by getting a free one from annualcreditreport.com you need to know if there is anything there that will give you problems getting a mortgage.

second is to figure out what you want out of a house. backyard? garage? basement? how many rooms? what kind of floors? in the suburbs? how far to the nearest stores? how far from work? a fix 'er upper or move in ready?

third is to look at houses online, look at pictures, look at google maps. compare areas for taxes and utility costs.

finally after all that, you can contact a realestate agent and have them take you out to look at houses. there's no reason to not get a broker since the seller pays for both agents. don't be afraid to ask around at a few different places before selecting one. don't sign anything without reading it.

Kipling

Omeks wrote:

-Setup a tentative budget in Excel, asking around and seeing how much utilities, home taxes, etc. might be.
-Ask for a raise at work when my annual review comes around.
-Stock up on non-perishable items. I actually did this a little today, buying a ton of toothpaste, body wash, etc.
-Setup a meeting at my credit union (for starters) and see what I can afford, what my credit score is, and other good stuff.

First line, then fourth line. And ignore line 3. If you buy a house, you will need many things unrelated to that list. Lawnmower, potentially appliances, tools and the like.

If you want to rent a room, that brings up a bunch of other things completely unrelated to buying a house.

Liquid Hellz

Get a home inspection, no matter what your realtor, aka "used house salesman" says.

Djeet

Assuming you've done the analysis to determine if you can afford to buy a house (this includes checking your credit-worthiness) a few questions you should ask yourself are:

Am I prepared to stay in this place for at least 5, more like at least 7 years? If not, am I prepared to rent it out or sell at a loss? Houses are very illiquid (difficult to convert into money quickly) and the real estate market is much more subject to the economy at large and demographic shifts than other asset markets.

If you're still game then you need to find out where to buy (neighborhood) and how much things are going for. This is to be informed by your own research (city-data, zillow, redfin, word of mouth) and supplemented by advice from a trustworthy buyer's agent.

Here's how it'll go down:

Once you've checked out a bunch of houses and settled on a few you like, you make an offer (and your agent crafts the offer contract to be conditional upon the home inspection, and offers up "earnest money", read this offer letter/contract). There might be haggling back and forth on price, cashback at closing, seller covering closing costs, inclusion of appliances and such (even furnishings in the event this is part of the selloff of an estate), repairs, and whatever else the offer is conditional upon. When both parties agree, you cut a check for the earnest money (the house becomes "under contract") and receive the seller's disclosure (e.g. this house was cut in half and moved cross-country, there was a major mold issue, foundation's fubared, etc, or nothing major to disclose) and you get the house inspected (I'd actually spring for an engineering report, or get an inspection done by an engineer). If the inspection/report or seller's disclosure shows serious flaws, you can allow original contract to expire and receive back earnest money (less the inspection fees, unles you paid that out of pocket), or you can enter another round of negotiations w/r/to price, repairs, cashback, etc.. When you do come to a final contracted agreement, read the good faith estimate in advance of closing, haggle down whatever expenses you can, and fully read all closing docs (preferably BEFORE closing as it's a textbook-full of info). Sign 8 jillion times and cut a big check and then prepare to suffer/enjoy the perks and burdens of homeownership.

Consider: desirability of resident school district, rentability (near university, major employment hub, or entertainment district), and competition (are a lot of houses in the neighborhood for sale?). Don't have a lot of advice other than know, when push comes to shove, all houses are sold "as-is" cause you have to deal with that shit when you own it. So treat it that way, and fully discount any repairs\upgrades needed, and opt for cashback at closing to do repairs rather than be beholden to the seller to fix it after the fact. You could bring down the purchase price instead of cashback, but unless you're real handy (a roofer, plumber, electrician, foundation guy) all that's going to be coming out of your wallet anyways, and it's nice to move into a house that works, or at least have the cash in hand to effect whatever major repairs are needed.

Thundyrkatz

Make sure you have some cash left over when you are all said an done and you get the keys to your new house. There will be all sorts of things you will have to spend money on, from appliances to furniture, to lighting, to yard tools, to small modifications to the house, like rekeying the doors, to repairs of all the things that were made to look good, which your inspector did not mention, that you will now have to repair. You will be amazed how much you will spend in that first year on stuff. Especially if you are moving out of your parents house.

bowen

Dunadan019 wrote:

you don't need to stock up on non-perishables, you can buy those after you buy your house.

make a budget, exaggerate on the numbers to adjust for price increases and don't forget to add in money for saving. figure out what the most you would want to pay for housing is and then aim to pay no more than 75% of that. your actual housing cost will include things that you don't know what to budget for yet like repairs, maitenence and additional taxes.

remember, you need to have a downpayment of atleast about 5% of the agreed upon house value and another 3-8K or so for closing.

first step is to check your credit report by getting a free one from annualcreditreport.com you need to know if there is anything there that will give you problems getting a mortgage.

second is to figure out what you want out of a house. backyard? garage? basement? how many rooms? what kind of floors? in the suburbs? how far to the nearest stores? how far from work? a fix 'er upper or move in ready?

third is to look at houses online, look at pictures, look at google maps. compare areas for taxes and utility costs.

finally after all that, you can contact a realestate agent and have them take you out to look at houses. there's no reason to not get a broker since the seller pays for both agents. don't be afraid to ask around at a few different places before selecting one. don't sign anything without reading it.

Going to modify this, 20% + closing costs is what you should shoot for. 5% might work if you qualify for FHA loans, but the larger the down payment the better the rates you'll get. Also you won't get hit with things like PMI's and other things for less optimal borrowers. If you can afford more than 20%, stick the rest into a savings account for repairs, upgrades, so on and so forth. The first year of home ownership you'll likely spend another 10-20%. Remember, this is an investment in the future.

If you're willing to sport a higher payment (double) 15 year mortgages are better than 30 year ones unless you plan to sell in the relatively near future (5-10 years). The amount of money you save is staggering. We're talking the difference of $40,000 in interest payments.

Tox

bowen wrote:

Remember, this is an investment in the future.

This.

Oricalm

I'm just finishing the first 6 months of living in my first house, so here's a few tips I'll toss out:

1) Budget out what you can afford. Comfortably. on your own, not including renters. Shit happens. If some silly goose can't make rent and you have to kick them out/evict them, you need to know you can survive without getting forclosed on.

2) Go to a lender and get pre-approved. They should give you your credit score (they have to pull it anyway). They will most likely approve you for $texas compared to what you can afford/want to spend. (Have them take whatever they quote you and use average figures to break it down into monthly payments. That is a great way to see what you can actually afford based on your budget. Even better, take those figures and make an excel spreadsheet. Then when you're looking at realtor listings, you can do rough estimates on what that house would break down to in terms of monthly costs, including taxes etc. I think the sheet I was working with ended up being within $5 accurate for my monthly payment )

3) Find a realtor. Stick to your guns. Their job is to sell you a house. They don't care if you can afford it/keep it. They've already made their money. I was lucky enough to use family friends who "looked out for me". On more than one occasion they pointed out things I would have never thought of. (I.E. This house is on a well. You're going to want to get the well purified again just in case; or "I noticed ants in the kitchen"). Regardless, they'll ask for what you're looking for and what your price range and desired locations are. Like any service industry, you'll come across good realtors and bad realtors.

4) Eventually, you will find something you want to go see. You'll go with your realtor and get to walk around the place and check it out. This is a good time for you to do a "pre-cursory" inspection. Check light switches. Check for pests. Listen for squeaky floors. Look for water damage in the ceiling or walls. Check how old/what condition the appliances, water heater, HVAC unit(s) and roof is. Ask what appliances are staying and what you need to buy. Also ask about the window coverings. (Are they taking the blinds or leaving them?) No question here is a stupid question.

(If you're like me and end up looking into a forclosure, some of these rules do not apply. The utilities may be shut off, making some of these things impossible to check)

5) When you put in a contract, Djeet covered it all pretty well. Regarding inspection: Some places are labeled "As-is". That said, there are certain states that have certain guidelines the house must meet to be sold. Likewise, certain loan types (like the FHA) have strict inspection guidelines for approval. Be sure to also investigate what "conditionals" you have in there. (I.E. You have to specify you're buying the house conditional on the inspection.)

Make sure you have a reputable and thorough inspector. You most definitely need to be there during the inspection. Ask questions. If it's not nailed/bolted down, don't be afraid to move it.

Also: Inquire if the house has PolyButalane (not sure on the spelling) plumbing. It looks like gray plastic tubing, almost like electrical conduit. If it does, keep this in mind: It needs to be replaced. Now. It's no longer up to code, and is not a problem that you can let go or ignore. (Most insurance companies won't cover damage caused by it breaking/rupturing because it's so common)

6) Settlement is pretty easy. Day of, or sometime right before you and the realtor will do a "final walk through". If anything is not in the same/better condition as it was during the inspection, you can fight about it/delay settlement because of it.


7) Other expenses: Rather than stock up on non-perishables, a better idea is this: Stock up on tools and/or Home Improvement store gift cards.

If you had told me I would spend $1500 at home depot my first weekend of home ownership, I'd have laughed at you. Now? Now I wish I had gotten out that cheap. Stuff around your house is going to break. You will have to fix it (or pay someone else twice as much to fix it for you). Having the right tools will help significantly.

puffycow

Everything Oricalm said. Super-limed. I am in my 5th month of owning a 16-year-old home and things just break. If it isn't breaking you want to change it. The number one thing is definitely do the worksheets he was talking about and figure out what you can afford to pay on your own. Any other money towards your mortgage is a bonus. When figuring out your budget, be aggressive with guess for utilities and the like. It's better to save too much in the beginning rather than starting in the hole.

Dr. Frenchenstein

If your inspector finds things wrong, that you don't know how to check out, don't be afraid to have him come out again once the seller has taken care of it. Like, if the flashing on the roof is not sealed correctly, and you're not sure what "correct" should look like. I wish i had done this so hard.

Omeks

Thanks for all the advice, guys. Now let me run this by you all:

I've seen in the paper in recent weeks that there's a local builder that is building up a new subdivision full of homes (all similar, they have a website with floorplans and 5-8 different home types). This builder also has two other neighborhoods that are already mostly established and they look very nice. Basically what I'm saying is I'm looking at the possibility of buying a brand new home or even having a home built (which would give me the option to have them put in things the way I want). Question is, is this a good idea. I've weighed the pros and cons:

Pros:
-Although the neighborhood is just starting and only has about four houses built (one of which is a showcase home), the other neighborhoods look very nice.
-I figure (correct me if I'm wrong) that if I buy a home and this becomes a thriving neighborhood, the property value could increase. It helps that this neighborhood is very close to a local school and about 5 minutes from a very large mall (this is in Knoxville TN if anyone is curious).
-A new home won't have to worry about age issues such as mold (which I'm allergic to)

Cons:
-I can't figure out the builder's reputation, nothing can be found online. I don't want a home that's made out of plywood or cabinets made out of particle board.
-Looks like the homes are placed VERY close together. The only problem I would have with this is that I don't want to have to turn down the surround sound if it's bothering the neighbor.

http://i193.photobucket.com/albums/z196/Omeks/house.jpg?t=1319672840

That's what I've come up with so far. I'm going on Sunday to look at the model home they have, hopefully I can find someone to come along with me. Anyone have any advice on buying homes that are brand new?

Thanatos

Find out who owns the builder, see if he's a registered owner in any other businesses in the state or in neighboring states.

MichaelLC

New homes aren't necessarily better than old - they still need to 'settle' and can have more issues than an older one who's done moving.

Is it a community with an HoA? That can bring a whole different set of nightmares.

Try to find out mow many homes in the other areas are vacant/for sale. Look up the buying history. Go talk to some people who live there.

Djeet

IMO, there's not a new development on the planet where I'd be interested in buying a home where only 4 homes have been built (maybe in very building-constrained areas?). Only if I had a solid job where I could depend upon future raises or alternative jobs available would I consider buying in that situation (basically if average home sale prices and number of homes sold monthly were decidedly on the rise). New homes become attractive AFTER home resales put positive pricing pressure (e.g. used home supply becomes tight, so new home supply helps alleviate that). New developments are not typically built up in areas that have well established/regarded school districts, rather they tend to be on the fringes of incorporated areas (unless we're talking pretty spendy homes), so that's unlikely to be a draw when you sell.

I can understand why you'd want a new/custom home, but I'd price in holding that home 5-10 years longer than a resale.

Any decent home inspection should discover mold.

adytum

New-home builders like to shield themselves by setting up an entity for each neighborhood, then closing that entity down as soon as all of the houses are sold.

So don't assume that because you buy a new home that comes with a guarantee or warranty you'll actually be able to make use of it. The home builder will probably be out of business when you go looking for them.

bowen

HOA are super annoying too, and most gated communities are HOA bound.

lessthanpi

This book helped me greatly.

http://www.amazon.com/Questions-Every-First-Time-Buyer-Should/dp/1400081971/ref=sr_1_1?ie=UTF8&qid=1319727687&sr=8-1

I'd stay away from renting out a room. Once you're a landlord there's a whole slew of financial and legal issues you have to wade through.

tinwhiskers

I know some people are against you renting a room, for valid reasons. But have you considered looking a a duplex? My friend and his wife just bought one, at it allows them to basically pay $500 a month on a mortgage that would be $1200 a month. It should be a mortgage that you can still pay on your own if you have no renter. But is will also help to defray the risk of a single-person renting a property.

bowen

Careful with that though, it can bite you in the ass renter wise if you're sharing the primary dwelling.

tinwhiskers

bowen wrote:

Careful with that though, it can bite you in the ass renter wise if you're sharing the primary dwelling.

yeah I'm sure there's a whole load of stuff to look at. But I guess it strikes me as way to defray the risk somewhat. As in a cash-flow view your employment is only responsible for a percentage of the mortgage.

Dr. Frenchenstein

I know TONS of people that rent out rooms in their homes without issue. Sure there could be issues, but don't let it dissuade you. Just don't count on that rent money when you calculate out what you can afford.