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How far in advance should I prepare for buying a house?
kime
Queen of BladesRegistered User regular
Queen of BladesRegistered User regular
As the title says :P. My wife and I are thinking of buying a house next year-ish. When should we start really looking? When should we (and it is still necessary, yeah?) talk with a realtor? When should we talk with our bank? When should we <insert other thing we should do here>?
Thanks!
Thanks!
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Also educate yourself on:
Age ranges in the area (IE - any super old stuff or more recent construction?) - make sure to see a few samples from each type
Neighborhoods/School districts - how long are you planning to own this place? Having kids? Make sure the schools are good. Also, plan for who you are in 5 years and 10 years, not necessarily who you are now
Building methods! Fun engineering type stuff for comparing slab vs. basement, blown in vs. mat insulation, oil vs. gas vs. electric heat
Other building stuff! Where do places face? do you like sun in the morning or evening? Do you want a yard? What amount of privacy do you want? Do you need a garage? How many bathrooms?
How handy are you? Are you willing to paint? pull up carpet? Completely gut and redo a room? Figure that stuff out so you can objectively look at houses with 1 or 2 crappy characteristics and know the cost to resolve.
OK, now that you've done that, start looking at places and realize what you thought you wanted isn't 100% in synch with what you liked about certain houses. This is fine. Prioritize! If you must have 2 bathrooms but don't care about flooring type, this is IMPORTANT for your decisions.
Also - NO HOUSE WILL BE PERFECT. Period. Seriously.
Oh, and DO NOT RUSH THIS IF YOU DO NOT FEEL COMFORTABLE.
What region are you looking in?
Feel free to PM me if you have any q's, as I've had to deal with a hell-house and grew up an architects son who can comment on any number of things (somewhat accurately).
Are there any good general resources for finding out some of that info? For example, I can always just Google "school districts in <location>", but that may not be efficient or accurate.
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Like use something like this to get a good idea.
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Your first call is to a mortgage broker, who decides what you can qualify for. Once that is done, you talk to a realtor.
Realtors generally are aiming to get you into a house as soon as they start taking you to view them. Closing usually takes 4-8 weeks, and house hunting will vary, but I would say 10-12 weeks prior to your move date is when you want to phone a realtor. Earlier if the market is hot, since you'll have to hunt more.
As a note of personal unofficial advise, the moment we are in right now is a historically exceptional time to buy a house. You may want to consider moving your date up by a few months and get with a broker sometime between now and January to lock in an interest rate, or at least try to. The locks are usually good for 3 months and you can usually buy an extension for 6 months.
Rates are expected to go up next year, so doing this MIGHT save you a serious chunk of cash. Expect to learn a lot about the Federal Reserve in the next year.
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Zillow should have some decent school tools, and Seattle is their home-base, so try those first. Also search for stuff like "good schools seattle". Also, given Seattle traffic, you'll want to find a place that will be easily commutable regardless.
Also look at things that recently sold in the neighborhoods you want to get an idea on pricing.
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It can be, but it can also mean people post houses for lower than they would during those seasons. If you have a choice of when you move, you generally sell then to get the best pictures/weather for showings. If you sell other times, it usually means things like "I got a job somewhere else" or "I want to take advantage of these low rates".
You could do a 6-month rate lock in December and that'll be good until June basically...
Obviously don't do it that fast if you can't afford it.
Houses are always for sale. Housing markets are complicated. Consult your realtor.
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Also, you asked whether you should get a realtor - I say yes. The cost to us was minimal, and our realtor was amazing. He not only helped us find houses that fit our criteria, he also shepherded us through all of the things you have to do when buying a house. Ask your friends and family if they have any recommendations.
Makes the mortgage auditing way easier. Fewer questions to answer.
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How handy are you? Can you replace an outlet, fix a faucet, re-caulk a shower? All houses are going to require maintenance of some sort. Depending on whether you can fix those or have to pay is something to consider and try to fit in the budget.
Does your area have a house buying season? Back east there seemed to be one that started in the spring and went through to the fall, to match up with the school schedule. So you would see higher prices March through May and then they would drop a little the later in the season. Where I am living now there is no recognized season, listings go up all the time.
As was mentioned earlier, no house is perfect. Be sure you are looking at things like traffic, where the sun is hitting, drainage (especially if the place is lower than surrounding properties).
And definitely what Jasconius said:
Going to draw special attention to this one, as it is completely accurate and is going to cause you a huge amount of grief if not taken care of in advance.
As a new home owner, I can maybe help a bit.
20% down is to avoid PMI. Mortgage insurance basically. Some places may require less to avoid PMI, and some may require more. It depends on the lender - so shop around!
New rules recently passed by the gov'ment with FHA loans means you pay PMI for the life of the loan link. Which kind of sucks. Consequently, if you're going to do less than 20% down, you can use the FHA loan , which allows you to settle for less money up front to get into your house. It's a trade off - if you want to renovate, some of the down payment money could be renovations money. It really revolves what kind of home you're looking for - 'Move in Ready', or 'Needs some work'.
Start looking now. You may fine a home that you love, but it's a short sale (which isn't short. They can take forever to close). Others may out bid you on a dream home. The seller could raise the price. Someone can just pay cash and snatch a home away. Things will always happen when shopping for a home, things you simply did not account for. Most of those things push your deadline out. That's home buying for you. So if you're in the market for sure, start now, and secure as much of your down payment as you can, talk with a mortgage broker, and find a realtor - just communicate expectations of purchasing timelines. Just talk however - when you're ready to commit, go for pre-approval. In the meantime, have your broker explain everything. Tax liabilities, title insurance, what an ideal down payment would be, and what loan vehicles are right for you. Make sure you understand everything you need, financially and otherwise. Once you start putting offers in on homes, you want zero surprises on the financial back-end.
So that stuff is all homework - but it will prepare you, and it's 100% worth it. A good mortgage broker is invaluable, if you can find one.
Then work on your must haves. Fenced in yard? Schools? Location? Cost? Condition? Once you have those figured out, drop them on your realtor, and see what comes up. I can tell you that homes have less competition to buy in the colder months, because of the holidays and no one wants to move. Supply is also limited - most folks pick spring/fall to get into new homes, and sell their homes.
I also recommend sites like Redfin - really good layout, easy to navigate.
Commercial loans can go with as little at 5% down depending credit
and it's a good idea because FHA charges some fees
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Realistically, you'll want to have 20% down even if you get one of those loans.
You'll need to cover things like inspections, closing costs, and things like that. Other things to keep in mind when you move into a new house are you're almost guaranteed to get hit with some major repair within the first year, so you'll want to keep a few grand liquidity on the side. You'll also probably want to replace the appliances at some point after moving in. And then, if you don't own a truck and have lots of friends that will help you move, keep enough money to hire a moving company.
Unfortunately that can be anywhere from a lot of money to a LOT of money depending on where you're buying. My wife and I ended up doing 5% down and keeping a good amount saved for the unforeseen issues especially since I'm a freelancer and also the primary bread winner. Not sure we made the best decision financially but it was the best for our piece of mind.
First, don't start looking at places until you are absolutely ready to make an offer. Because I guarantee you will find The Perfect Place, and it will be gone before you can buy it. Then nothing will live up to it for a really long time. And that feeling SUCKS.
There are plenty of calculators online that will tell you how much you can borrow. What they never tell you is the cost of things like lawyers fees, surveyors fees, etc. Keep a good portion of cash aside for those, or make sure the mortgage will roll them into the costs.
Speaking of mortgage, get the deposit together. Throw it into a savings account (not a time-locked one, one you can access at any point) and let it sit there for a few months. Your bank doesn't just want to see you can get the lump together, they want to see you can save and survive without touching it. The safety net money you don't need right away, because up until you actually get the house if something bad happens you just stop the process and dip into the deposit.
As to what you should look for in a place, there are two schools of thought: if you are going to put a lot of money into renovating a place, then you want "the worst house on the best street", since your improvements will change it from the worst house. On the other side, if you just want to buy a place and be done, then you need to find the best possible house in the best possible area.
Once you have a place, if you are doing it up there are two rooms that get done first, and they happen to be the two most expensive to do. Kitchen and bathroom. Be aware that the renovation route has a high starting expense sheet. You can cope with flaky paint in the living room, you can cope with bad carpeting in the bedroom, but mold and cracked tiles are good ways to get sick, and kitchens and bathrooms are prone to both.
You can do a lot of the work yourself to save money, but it is draining to work a full time job and try to redo a house at the same time. If you can afford it, do the demolition work yourself and then hire a professional to make it all pretty again.
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1. Start learning the calculations of homes PITI (Principle, insurance, taxes and interest) on all house costs. Gives you perspective of true mortgage values based on what you will take out in loan. Example: House is $300 - $20k down =$280 loan -> $1.6k mortgage
2. Create a cheat sheet of the terminology in real estate and mortgage broker, Obama passed some laws that actually makes it easier to get bogus charges. Always request itemized break down.
3. Research neighborhoods you like to somewhat like and visit them. Really learn daily lifestyle in those areas to learn what neighborhoods you want to put your energy in. As you start looking at house, you build a list of items you want in a house. In LA my realtor told me most folks will have 10 things they want in a house but reality they may get at most 3. Doesn't mean you may get lucky, I got 10 things I want in a house.
4. Don't ever fall in love with a house until you get the keys
5. When closing on a house, its not uncommon to get two home inspectors. Its worth spending few bucks than owning a bad house for 30 years.
6. Finding realtor and mortgage broker is like dating.... not all are good fits.
7. After getting a house, avoid major purchases. I was grateful to have friends and family who gave me their old furniture. This is a major reason people struggle first couple of years.
Took me two years to find my house and I took my time educating myself to make sure I got what I wanted. Good luck and PM if you need help down the road
― Dr. Seuss, Oh, the Places You'll Go!
every house (even new builds) will have some issues, it's just the nature of the beast when you consider all the interconnected systems in a house. the problem with a "fixer-upper" is you will never be done fixing it!
now, if you are a contractor, then obviously ignore this.
as far as financing and debt are concerned - interest rates now are so low I wouldn't feel uncomfortable only putting down 5-10% on a home, but be aware that this can and will affect the loans you may qualify for. time value of money means locking in debt at 3.5% (give or take) is more than reasonable, even with the PMI hits.
Don't do a HELOC (seriously, I used to sell them, just don't)
don't buy anything that will cost more than 33% of you're monthly income. if that keeps you out of the market, then wait longer and bankroll more to make a larger deposit.
remember - to the realtor (yours, and the sellers) the right house is whatever house you're in, and the right buyer is you.. don't let yourself get cajoled or bullied into committing to a purchase.
do not "fall in love" with a house and accept sacrifices because of it. this is likely the largest purchase you will ever make. make it with a cool head!
HELOCs are fine once you've got equity in your house and are responsible enough not to run a balance on your credit card for more than 2-3 months.
1. always focus on location as the primary criterion - live WHERE you want/need to rather than sacrifice location for a nicer/upgraded house. The house can always be fixed up, but you will not be able to change the location until you sell/move.
2. if you think you will be able to barely afford a house (mortgage/taxes/insurance) then i guarantee you won't actually be able to afford it. once you own, lots of costs that you never had to worry about become your responsibility and add to the monthly bill. Think about how much heating/cooling a structure the size of a house will cost (heat in northeast can be $500/month for an old house!), then consider all the other stuff that seems minor but really adds up - water bill (quarterly), garbage bill, town parking permit, dog license, bill for breathing town supplied air, tree viewing bill, and whatever else they can come up with
3. it will always take extra time to get that document signed and notarized - or to get some paperwork from your bank - or to get something from the town, etc. etc. so leave yourself plenty of time. if you're doing something last minute, it's probably too late. And penalties for missing a date can be onerous (loss of your good faith deposit, etc. just b/c your bank had a brain fart and didn't get your loan prepared on time)
4. as soon as you're in contract, go to the town and get all the documentation on the property - any permits issued/closed in the last 5-10 years, any legal battles with the town (e.g. current owner fought town over sewer issues, etc.), and especially any permits that are still open. shady contractors love to just bail after finishing a job, and not close the permits. these will not allow you to close on the purchase.
5. everything costs at least $1000. seriously. some small plumbing thing? $1000. fixing a few outlets? $1000. broken tile? $1000. loose brick in chimney? $1000. except when it's a lot more (boiler breaks? $7000, etc.)
This is false in the strictest sense, but true enough that you should just go ahead and believe it. It makes a good reality check on your finances. Subtract your down payment money from whatever savings you have (so you're only considering what your finances will look like after you close on the house). Now, with that adjusted amount, if push came to shove, could you drop a grand on a repair today and then buy groceries tomorrow? If that would be painful, it's OK. If you couldn't possibly do it, you need to beef up your finances some more before you take the plunge on a house.
I'll tell you a story. Day three in our new house - I get out of the shower, and my wife says she thinks she heard water somewhere. I tell her it's probably just water running down the inside of the drain pipe, but let's check. She turns on the shower, and I check it out. Sure enough, a huge crack has opened up in the pipe. I'm reasonably handy, but this isn't something I can fix. It's plumber time, and since everything in the upstairs bathroom drains through this pipe, it's plumber time NOW. The plumber comes, and he can't get to the pipe, because one of the heating ducts is in the way. He tries to remove the section that's a problem, but it's attached in a weird way that he can't get undone. So, we get an HVAC guy to come over. He curses at whatever moron attached the duct, but he can get it detached after a little while. The plumber can now get to the pipe and finishes the repair in under 30 minutes. The HVAC guy reattaches the duct. I get out my checkbook. The bill was about $600, which I paid with an inward groan, but no major distress, because we had been careful to make sure we still had a good emergency fund after the closing. That's the position you want to be in, unless you really like ramen and misery.
I'll reiterate the standard 'get your finances and paperwork in order now'. Get everything scanned and neatly cataloged- bank statements, check stubs, W2s, etc. Pull a credit report for you and your spouse, make sure everything is straight and correct. Pay off debt if you can, like if you've got a store credit card with a smaller balance or a car loan with just a couple grand to go. Being able to just e-mail some random document is a god-send.
It's a smaller thing, but get your identities straightened out. If you're wife's driver's license still has her maiden name on it, or if she hasn't filed a name change with Social Security, take care of it now. Make sure you have copies of your birth certificates. Take a few minutes to find a notary nearby. If she was married previously, make sure you have her divorce documents and marriage certificate so she can prove every name change. With your cataloged documents, include scans of the front / back of both your driver's licenses.
Start looking around different neighborhoods to see what you like / can probably afford. Don't forget property taxes - they can vary significantly depending on the area, and keep in mind that they can go up year to year. Make a list of your 'must haves, would likes, etc'. Assess your own skill levels at what you can / can't repair and take care of, and try and get an idea of a contractor, plumber, HVAC guy, etc in case you need them. Do a little research on inspectors in your area to find a good one at a good price. Don't be afraid to ask around, most people are very happy to provide recommendations / warnings.
I'll say one recommendation that served me well is that our realtor recommended - when my wife and I had decided on a house or neighborhood we liked go for a few runs / walks in the neighborhood at different times of day, and drive from the neighborhood to / from work to get an idea of the commute. Don't just check it out on a Saturday and fall in love - you're going to be there 7 days a week at all hours of the day. We ended up looking at homes in a much smaller radius because our original search area would have had an awful commute, and decided against another neighborhood because it had really heavy and dangerously fast traffic where people were cutting through from a main street to a shopping center.
Don't expect to find the perfect house. Every house has something wrong or some kind of quirk. If you fall in love but don't get it, just know you'll find another one that you like (and still do some 'grass is greener' on the places it doesn't measure up). If you decide to buy a fixer-upper, make sure you really are capable of fixing it up or have the money set aside over and above your down payment. I still wish we could move our (better, newer, more / bigger bathrooms) house, and put it on the more secluded and larger lot with an in-ground pool of the first house we spent a torturous four months trying to buy until the short-sale fell through. It was miserable and painful and heartbreaking, but two days after the short sell fell through we put in an offer on our house and didn't really look back.
Expect to spend anywhere from $2500 to $5000 on basics like paint, lightbulbs, cleaning supplies, welcome mats, a lawnmower, drawer liners, and a hundred other things you need for a house - and that's if the home is in good condition without needing honest to god repairs. Plan on more if you need to buy furniture or appliances or window coverings. If you need repairs, plan on having that money set aside over and above the moving / move-in expenses. Know where your local Lowes or Home Depot is - you'll be going there a lot.
If you can, plan a full week of vacation to get everything moved, cleaned up, and settled in. Bank it now...moving is exhausting enough without trying to squeeze everything into a weekend.
Aside from that, look at a lot of houses. For our first house we worked with a realtor, spent a few weeks looking at houses, then took a break and did more looking ourselves for a couple of months. This let us get a feel for how the realtor worked, get her input on stuff, and then take that knowledge and figure out what we really wanted/needed without wasting her time and our time driving to even more houses we were never going to buy.
Talk to as many people as you can who own homes about what they like and dislike with their houses, what they will be looking for in their next house based on what they learned with the current one, etc. For example my house is in a heavily wooded area with TONS of trees. My parents were all about trees and try to convince me not to have any trees in my yard cut down whenever I talk about it - they help keep it cool in the summer and keep heating costs down. My opinion after owning this house? Fuck a tree. Trees can go right to hell. I mean, a tree or two is fine, but tons of them? It's a bitch to get grass to grow. Forget about having an actual garden. I have to wash my house constantly with mold killer because it gets mold and mildew growing on it from never getting any sun. I am in the process of replacing all of my windowsills which are rotting for the same reason. And fall? I have 20 bags of leaves behind my house right now, which my garbage service only takes 2 per week, and the entire yard is covered in leaves again.
Have the ac/heat pump/other heating device and duct work checked out as well. An inspector will make sure it works, but I know mine didn't warn me about another issue (not that it would have stopped me from buying the house). Try to make sure the ac and heat pump are the right size for the house (in washington state you may not have a heat pump since it probably gets too cold for them to do well) and that the duct work is the right size for the the ac and heat pump. My duct work is too small and so not enough air gets pulled through it. The end result is that my heat pump freezes up with ice several inches thick because it cannot defrost properly. Because of that I have to run the all electric emergency heat (built into the heat pump, not the kind that runs around the baseboards) and it costs a fucking arm and a leg every month. The rest of my power bills are more than they need to be even when I can run normal heat or ac because it's not operating as efficiently as it could be as well, but winter is the absolute worst.
I'd think that it's going to vary a lot based on individual needs, etc...but assuming you've got all your other debt paid off and have sufficient savings that you don't need to take on other higher-interest debt in the future (i.e. car loans, credit cards, etc) you probably would be better off putting extra into your principle and / or paying over a shorter (10 / 15 / 20 year) term.
That's also assuming you're doing things like maxing out your IRA deductions and things like that. I'd think someone in this position should really talk to an accountant / financial planner, cause someone with that much extra cash probably should be planning with an expert who can look at their individual needs / position.
especially if its your first house
this includes yard equipment, tools, cleaning, furniture you didn't know you needed, repairing and replacing minor things that were left disused by the previous owner, and PAINT
painting is expensive unless you DIY. I spent almost $1,000 on my living room alone
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So how much is risk mitigation worth to you?
You still have to pay interest, you just get to write it off. A lot of people forget that it's not 'free', but the tax advantages help to mitigate some of the 3.5 or 4 or whatever % interest rate you are paying. My wife and I had to consciously avoid that when dealing with business expenses / write-offs the past few months, and it's hard to remember when paying interest on a mortgage too. That tax advantage isn't free - it just mitigates money you lose in interest.
Really, this is a question that's best left up to an expert - an accountant or financial planner - who can evaluate your individual circumstances as a whole (income / tax liability, stability, age, short / long term goals) and help you decide what approach is best.
My feeling is that most people probably would be best off long term in a situation where they pay 20% down, can easily make payments on a 15 year fixed rate mortgage, maxes out their IRA / 401k deductions annually, carries no other debt (at a higher interest rate than their mortgage anyway), keeps a six months or so liquid, and invests any remaining money in a relatively stable mutual fund, probably an index fund.
Of course, the best approach will be very different for someone with a lot of variability in their income, someone who has a large nest egg / windfall, but small income, someone who is 25 vs. 50, etc. Which is why an expert really needs to look at all the numbers and suggest various goals / approaches to meet those goals. Realistically, if that's the biggest problem you've got you are in damn good shape.