...And Speaking of Housing
by Heather Koerner on 05/09/2008 at 10:33 AM
Earlier today I talked about how housing is one of the "big five" expenses for families. That also means it's one place where mistakes can be very costly -- for families or singles.
And over at Boundless, I wrote an article titled "Home Buying Mistakes" where I list 15 common home-buying mistakes and how to avoid them. I also tackle whether there is anything distinctive Christians should be considering in the home buying process.
I'd be interested in what you think. Take a quick look at the article (it's an easy read -- nice bolded topic headings) and see if you agree. Have you made any of these mistakes? I have. Anything you hadn't thought about before? What about coming at home buying from a Christian worldview -- any ideas for that?
And in the spirit of being "shining stars" in the blogging world and showcasing the intelligence and originality of our readers, will you promise not to start any comment with "I haven't read the article ... but"? I'm really interested in what you can think of that I haven't. I promise, you will make my day! (Of course, "Amens" are perfectly allowable. You know..."Amen to #7! I learned this by..." That kind of thing.)
Also, if I had to add mistake #16, I think it would be buying a home where the master bathroom has no separating wall between it and the master bedroom. Whether you are married or want to be someday, I will swear by this one. We do have a separating door, so this morning when my husband hopped into the shower at 5:45am, I was able to simply roll over in the darkness, put the pillow over my ear and get 45 more minutes of sleep. Ah, bliss.
1. Louise said the following at 10:38 AM on May 9:
I like the article.
Lots of helpful tips...IMO people can get so excited about potential homeownership that they can easily fail to make practical decisions about the purchase.
I have a secular worldview, BTW.
2. Jeremy said the following at 10:57 AM on May 9:
Just a little note, the one big thing that I don't often see highlighted (in other articles as well as your own) is the two major monthly costs on top of a mortgage, insurance and property tax. I have a mortgage with a monthly payment of about $650, and the taxes and insurance are another ~$300 per month. That is almost half again my monthly mortgage payment. It was quite a while into the process before I realized how substantial those costs are.
3. P&P said the following at 11:11 AM on May 9:
Overall, a very good article. You've hit on on all the major things to look out for in terms of buying a house, but I think #16 could be:
Have a Plan B
Plan B is your fallback plan in case things head south. More than a few people have found themselves caught in a bind when they go to their closing only to discover that the Realtor or lawyer has tacked on some last-minute fees (processing, etc.), or there "was a problem" with the mortgage broker and suddenly your interest rate is .5% higher than you originally agreed upon, or the seller simply backs out at the last minute.
It's unfortunate that earnest and honest home buyers encounter these situations, but you should be prepared for this to happen. Make sure that you have a back-up plan in place; enough money to rent a short term apartment, a good lawyer contact who isn't involved with the home buying process if things get ugly and the patience to understand that if this sale falls through it isn't the end of the world.
Home buying is a very complex, expensive and emotional process, but by keeping in mind that things don't always work out as planned and having a Plan B, you can take some of the stress from the process as well as safeguard yourself if things do fall through.
4. Mike Theemling said the following at 11:19 AM on May 9:
It is a good article and overall is correct (I esp like #15, this list isn't exhaustive).
You are absolutely right about the Master Bedroom being aloof from the other bedrooms. My mom advised me on this as I was looking for homes (I was naive because I was single [still am]).
A tip related to the above paragraph could be #16-Consider resale when purchasing a home. Unless you plan on living your entire life in the house (which you probably won't) you need to choose a home which someone else would buy. This would mean avoiding 2-bedroom homes (unless it's an obvious "starter home"). There isn't a big market for 2 bedroom homes because, surprise, most families who buy homes have more than one child (thus wanting separate rooms for each if possible). Also consider something too that is often overlooked: School Districts. It's a sad reality (because school spending is directly proportional to property taxes) but being in school district X rather than Y can make or break a sale. Some people (more than you'd think) must reside in a certain school district and others will never move into another.
I would say the biggest mistake people make though is they buy "too much home" for their income. They don't consider things such as insurance, maintenance, and added expenses as the family gets larger/older. In general, a mortgage shouldn't cost more than 25% of your gross pay. Better to live in a smaller house in a nice neighborhood than a bigger house in a not-so-nice one.
5. Heather Koerner said the following at 11:26 AM on May 9:
P&P (#3): Love, love, love your #16. Well said.
6. Elizabeth said the following at 11:37 AM on May 9:
Along the lines of "Buying for yourself" (#11), making sure that your house is able to include others. Do you have space for hospitality, or are the kitchen and dining room set far apart, so that whoever is preparing food won't be included in the fellowship?
Though I'm (most likely) several years away from home owning, I appreciated the article...it gave me some good things to think about. Thanks, Heather!
7. Kellie said the following at 11:43 AM on May 9:
Regarding #14: Are there any Boundless staff members who do not own a home as to enable the mom to stay home with their kids?
8. obewan said the following at 12:25 PM on May 9:
These days the big mistake seems to be buying the big house in the far suburbs. I was once in Detroit only 17 miles from work, but in rush hour traffic, it took up to 1-1/2 hours to get home at night. Combine that with the insane people who insist on driving SUV's, and you have a recipe for economic disaster. There is even a movie out called "The End of Suburbia." Someday, the oil will be gone or at best even scarcer that it is now, and people will no longer be able to afford the big house in the far suburbs with the big SUV's. I live in a medium size condo only 3 miles from my office. I save on the low (less than $80) electric bill + the gas to drive to work + the low property taxes. I know plenty of people at church who have $300 electric bills, and 2 or 3 times the property tax. On top of that, their quality of life is suffering in traffic jams every day, and people in the world are now suffering from food shortages caused by the gas we waste in America.
9. DanL said the following at 12:34 PM on May 9:
I recently purchased a home so this article was of some interest to me. The biggest omission I see from the article is making sure that you actually want to own a house. I really went back on forth on whether it was a wise financial move for me to buy or not, but in the end decided that I wanted my own house (and since I could afford it) that I was going to get one for non-financial reasons. I see a lot of people (particularly women) who are convinced that buying is always a great financial move that not always the case. I estimated that given a flat real estate market I’d have to stay here for 5-8 years to break even given the transaction costs of buying and selling. Should I get married or the military base I work at were to close (the only two reasons I can see that would cause me to move before then) then I could loose money, but I’m okay with that for the same reason I don’t mind “loosing” money when I go to see a play or movie. I really like my house though, and hope I can stay here until I die.
The other thing I would say so make sure that you leave yourself a sufficient emergency fund and budget for the things you will buy when you move into the new house. I drew up a budget for this before I moved, and I ended up being over budget by quite a bit. I was under budget on furniture (I could still use some more pieces, but I can functionally entertain, and I’m going to save up before purchasing any more), but over budget on everything else. It has mostly been lots of little things that have added up too. That the lawnmower I inherited from my grandfather didn’t work and couldn’t be fixed was probably the largest unplanned expense (although a few plumbing repairs probably came close). But there is a never ending list a little things: small lawn and garden tools, repair tools, kitchen equipment we used to share with roommates, even food staples I used we used to share, cleaning supplies, etc. It all adds up. It has been several months since I’ve moved and I’m still purchasing things I never thought about.
Here are my thoughts on several points of the article:
#2. I really wished I could have involved my parents more in the process, but that didn’t really seem possible. When I talked to them on the phone there were also times when it was apparent that they way certain things where done in MI 30 years ago isn’t quite the same as how they are done in MD today. I did get good advice from some people at church, but I also found that lots of random people liked to give unsolicited advice and much of it had to be filtered out. I did have a good and recommended realtor and I had a close friend come house hunting with me before I made an offer.
#3. I really don’t like rules of thumb like the “28/36 rule” and I don’t think that one is very realistic today. There is no shortcut other than making a detailed budget of predicted expenses to see what you can really afford. Talk to friend in homes similar to what you are looking at to make sure you are budgeting realistic number for things like utilities and maintenance. In may case, I have no debt other than my mortgage, so the fact that they “28/36” rules state that amount I can spend on a house wouldn’t change if I were spending 8% of income on car or student loans seems particularly senseless. When I first purchased my house, but PITI payments where 40% of my total income (I recently received a raise, so they are now 34%). I have not had any problems in making these payments, paying a tithe, contributing 10% of pay to my employer sponsored retirement plan, maxing out a Roth, and paying my other bills. But you need to run the numbers for yourself. A lot will depend on where you live too. I still don’t think any of your three guidelines will work for most people inside the DC beltway.
#4. I agree with this in principle, but warn against putting too much towards a down payment if that meant not having a sufficient emergency fund. I put 10% down. I was able to get a loan that didn’t require PMI though (Navy Federal doesn’t require it on most of their loans). I’d be hesitant to put down less than that. I could have put down a little more, but I would have had to put 20%, which I couldn’t, to see my interest rate drop any. I decided I’d rather that money stay in the bank so I had access to in an emergency.
#5 The other thing I did was to buy a house about three blocks from where I had been renting, so I knew the area really well. I’d really recommend that. Actually my house was only a block from where one of my best friends used to live (before she moved to Asia as a missionary) and it was the same model house as mine (although mine has an addition of it which hers didn’t) so I was able to get good feedback on both the neighborhood and the house design.
#11 In terms of looking at houses, getting married was definitely my biggest fear. I tried to pick a house that I thought would be good for a family. I’d like to have a big family, so I do worry that my house is a little on the small side, but in the end I could only afford so much. I’ve heard that when women marry a man with a house that I almost always want to move because they weren’t part of the home shopping process. It would seem pretty unfair for them to have to live in a house they didn’t help pick. I really hope that I end up marrying someone who likes my house though. But if push came to shove, I’d trade my house for a spouse any day.
#12 By all means get an inspection. But recognize that any house, even a brand new one, is going to have problems. And no matter how good of an inspector you get, there will issues that arise only after you move in. This is life. If you can’t deal with maintenance issues, don’t buy a house.
10. PLH said the following at 1:56 PM on May 9:
Jeremey (2), You're right about taxes. In the area I live, it's not uncommon for a realitively modest house to have up to $10,000 in taxes alone! I rent currently and am loathe to buy because of the taxes. Since I'm not married, I don't feel I need to yet anyway. I wonder what the answer is, though, for people in live in such an area. I don't want to move as my entire extended family lives in the state and hope they will be an important part of my children's life. Any thoughts?
11. Anna said the following at 2:14 PM on May 9:
I think the article and the tips in the above comments are great. Tomorrow is my 1 year anniversary in my new "home" (it's a loft). I would chime in the following:
- Try your hardest to avoid emotional attachment to a house. Don't be afraid to walk away. The place I live in now I fell in love with, but wasn't getting the deal I wanted and after several offers decided to walk on it. Granted, two weeks later the seller called back and invited me to re-offer at my old price, but this goes to show that if I had let my enthusiam for the deal run away with itself I would have missed out on a much better deal.
- Can't echo the poster above more strongly: Make sure you've budgeted enough to move into the house. Some things will cost more. Some things will cost less. But over time since you're in charge of maintenance there will be costs, and you want to not have to stress over repairs. [And yes, as the poster above said, even new place will have issues.]
- When you're going through the mortgage process, make sure you fully understand the concept and practice of your escrow account. Since escrow accounts are adjusted (once a year in my case) your monthly payment amount can change dramatically if taxes go up...in my case $300 a month!
- Scout out the neighborhood MANY times. The times of day you'd be driving to/from work. The time of day you'd want to go running. The night time to see how noisy the surrounding area is. The weekends when you would be sleeping in or out and about. Make sure you know what all is near you. I live right by both a train yard and a church with bells, and I love them, but unless you were familiar with the surrounding area you might not notice that noise until you're moved in.
- Shop around when it comes to furniture. I found that after scouting many stores in town, I could find places that would carry the same furniture for hundreds less just because it was a less "trendy" shop. Many of these stores get their furniture from the same manufacturing companies, but sell them for a huge difference in price. Many times I saw a piece that I loved in an "expensive" store, wrote down the manufacturer, and then found another store in town with cheaper prices and delivery who would order it for me. I can't tell you how much money I saved this way! (Corollary in saving $: Get ready to assemble furniture. You can great really great stuff and save a ton of money on it.)
12. Jo said the following at 3:54 PM on May 9:
Interesting article in some ways... But I wonder how much these things depend on location and country. #3 made me wonder what the situation is in America as opposed to here (England) because where I live, a one bedroom flat would cost £100,000 - over three times an average annual salary (and about six times what I was earning in my care-worker job). A two bedroomed house is closer to £200,000. Happily, house prices are finally dropping, so when I start looking in a couple of years I'll have an advantage... but I will expect my mortgage and bills to be more than half my salary. I'll have to look at the pros and cons when I'm in that position, but in principle, I'm okay with that since I'm used to spending over half my salary on rent and bills. Perhaps it's just a different situation over here?
13. Jo said the following at 3:58 PM on May 9:
I should add that houses aren't that expensive everywhere in England; I live down south where everything is more costly. However, salaries are also higher down here, so I'm not sure how much cheaper it is up north in real terms.
14. BDB said the following at 4:03 PM on May 9:
Regarding the debt ratios in #3 - I don't think they're realistic for Southern California. Of course, housing prices are unrealistic here, which is why Focus on the Family moved from Pomona to Colorado Springs.
But before someone gets more aggressive, they should be able to do the budget and figure out how to live. The one thing missing from that ratio is the impact of taxes on higher tax brackets. Really, someone can't buy real estate here with an income less than $50,000. But for people who've gotten much higher than that...well, your choice becomes paying the money in taxes or paying a bigger mortgage - the money WILL leave your pocket either way. It took me a few years to get comfortable with the math, but now I'd rather pay a bigger mortgage rather than having the money simply disappear into taxes.
As for mortgage brokers--aside from the bubble/whirlwind they are currently reaping, they make mistakes. I've used USAA. They're stodgy and require lots of documentation. But no surprises, ever.
Three other things should be considered:
1) Natural disasters: I picked a 20-year-old neighborhood that has a high school between me and the scrub growth that burns. I know the fire department will save the high school - it's a defensible position. Which means they'll save my neighborhood.
2) Resale: the easiest house to sell is the standard 3 or 4 bedroom family house. In any market. So, even for a single person, buy something that's easy to sell. That means you'll lose less money on them in a down market. But it also means that you'll have a solid set of buyers in the future in a good market. It's the 3000-5000 sq ft houses that are really suffering in price right now.
3) What else do you want to do with your house? Do you want something you can use for ministry, such as a Bible study? Build that into your plan. People who like to entertain make the deliberate decision to do so when they buy real estate. Not all floor plans are good for entertaining. For example, when my grandparents built their home, the living room was off to one side. For normal days, it was kept closed and the heat off to save electricity. But they also always kept it clean and tidy. If someone dropped by unexpectedly, they could usher them to the left into the living room - regardless of what projects might be spread out in the rest of the house. If you want to have guests, plan for a guest bedroom and bathroom, too. Makes people feel much more comfortable.
15. Mike Theemling said the following at 4:05 PM on May 9:
obewan (post #8),
In general I have no sympathy for those who complain about high gas prices and yet drive a gas guzzling SUV. No one twisted their arms to do so. There are much more fuel efficient options for family transportation than a large SUV.
The cause of the oil price increases isn't a lack of supply, it's an increase in demand (worldwide). As long as more and more people want oil, the price will naturally go up.
What's also driving up the price in part is a lot investors who are hedging their funds into crude.
I'm just thankful that we aren't living like we were in the late 70's where regardless of if you could afford it or not you were alloted only so much gasoline and we had long gas lines.
16. Darren Hom said the following at 4:13 PM on May 9:
Thanks for the article. I thought it was helpful and made many good points. Just one addition:
The down market we're seeing now isn't going away any time soon. It's likely to get much worse. Most of the Alt-A and option adjustable rate mortgages haven't re-set yet. When they do and the payments go up, there will be more waves of foreclosures.
Large price declines have already started to occur in places like California. I'm working on a short sale now in California, helping a homeowner sell his house when he owes more than the house is worth. The loan balance is $510K. Our highest and only offer is for $210K.
In the average area, I would pay no more than 85% of the current market price for a house. In bubble areas where housing prices rose the most, I'd be even more conservative. Be careful!
More information here:
http://disasterinvestor.com/2008/04/30/the-coming-alt-a-crisis/
17. BDB said the following at 4:24 PM on May 9:
Caveat: I should have mentioned two things on the ratios. First, I'm doing this on one income, I definitely don't think the debt ratios should be pushed so high on two incomes.
Second, not everything rises at the same % of income. For example, you don't need to spend more on a car just because you get a raise. You also don't need to spend $15 for lunch every day, even if that % of your income would be about right. So if you push the housing portion up, be deliberate about pushing the other portions of your budget down. Everyone on my street has a nicer car than me, and I'm OK with that. If they could fit their car into their garage, I wouldn't have noticed...
18. Novagirl in VA said the following at 5:59 PM on May 9:
Heather, great article -- really well done. I'm single and have owned my townhouse for almost 7 years and have rented two of the BRs to roommates the whole time.
A few thoughts from my story...Definitely take your time and do your research because this is probably one of the biggest financial decisions you will ever make. But don't take so much time that you find three years have gone by and you haven't bought. Prices will always go up and will outpace your salary, so buy as soon as you are financially able to do so, and meet the other criteria Heather mentions.
Remember that buying a house is not really the same thing as buying an investment. You hope it will rise in value, but if it doesn't you are still doing better than throwing away money in rent and getting a tax deduction. And for goodness sakes, don't borrow from your 401(K) to buy a house!!!
I think you mentioned this, but it is critical to always have an emergency fund with at least a few thousand in it. My heat pump died about a month after I moved in and that was a $2000 problem I had to fix immediately. Luckily, I had the money in my emergency fund.
Also, don't be afraid to see if your parents might be willing to help, but don't expect a handout either. I never thought my parents would help me, but when I started talking about buying, they surprised me by offering to loan me my down payment which enabled me to avoid PMI. That was huge, and I could not have bought without that help.
I paid them back monthly, with interest, and about two years later, I was able to refinance and pay them back in full with interest. It turned out to be a good deal for both of us.
And I can honestly say, buying a house has been the best financial decision I've ever made. But you are absolutely correct, you have to do your homework and go in with your eyes open.
19. Dave said the following at 7:26 PM on May 9:
Ever heard of a location efficient mortgage? The basic idea there is that short distances and public transit access make higher debt loads more acceptable. It essentially plays points 3 and 7 off against each other.
20. DannieA said the following at 7:50 PM on May 9:
I LOVED this article because I'm in the process of buying my house (townhome).
I read the list to see if I've been doing the steps and glad to say there were not red flags waving as I was reading. I would stress the following more even if they were briefly touched on.
BEFORE buying:
1. Eliminate your debts. (This is especially crucial for any single person contemplating buying a house) Your $400+ student loan payment will affect you...I was able to wisely move back in with my folks, save and accelerate my student loans and now don't have any...made me look good with the lender :)
2. Build up your credit. A year ago to now, my credit score has gone up and now I have very good credit (not excellent like my parents...but very good). Check it once a year...make a plan to help your credit score and monitor your credit reports.
3. Become mentally prepared and as someone posted above, make sure you really want to buy a house
WHILE buying:
1. I agree with the person who said don't fall so attached to a house that you can't walk away. My father and I were not happy with a deal at one place and although I really liked the townhome, I agreed to walk away with him. Needless to say a week later, they had sold the one I was looking at, but they had another one...in a better location, has a view, and is a lot nicer. I would not have gotten that particular unit with all the incentives I got (including money to upgrade my floors) if I had not agreed to something that would not have been the best deal for me.
2. Know what you want. For some people they want a single family home...3 bedrooms. For others like myself I wanted a gated community/townhome like with a home owners association for a) little maintenance b) safety due to the fact that I'm a single female. And yes my unit is a 2 bedroom, however, even if I marry in the future this is a home in an area in a good school district (yes I checked the API scores and the district), that is close to a community college, that is close to a county hospital that has a contract with a medical university...which I know I won't have a problem keeping and renting out. This is a place I want to have and keep even if I'm not living in it.
3. Location..location...location. I'll be 2 miles from my parents. My parents live in the area and I've lived with them for a year so I know the pros and cons and all that. Drive by at all hours of the day week day and weekend.
Miscellaneous:
If you have good parents...use them. They have helped me a lot during this process...that is still ongoing...and are a source of encouragement.
Learn the lingo. I've been reading books and just learning the definitions of words related to mortgage, home ownership, escrow, etc.
Lastly:
Pray...I asked that if God didn't want me to have a particular townhome/home that He show me in a bold way, because I'm not good with subtle hints. I had that answered with two townhomes I wanted before getting this one. The disappointments were so worth it!
God is great...let Him lead you.
Thanks for the article!!!!!!!!!!!!
21. kaj said the following at 7:57 PM on May 9:
This article had very useful advice.
I know I am in no position to buy a house at this time, because of my finances and unpredictability of my work right now to support my 30-something single self (I have a JOB, not a career).
About "knowing your neighborhood," one tip I'll pass along, for both homeowners and renters alike:
Check your state's sex offender registry (Google "Megan's Law [your state]" to find it) before considering moving to an area. This may be of special concern to single women or anyone with children (or planning to have any).
I was once interested in an apartment that seemed to be in a nice location and in my price range. But when I entered the address of the prospective apartment into my state's SOR, I soon found out a registered sex offender lived practically next door! That information convinced me to not pursue that particular apartment any further.
22. Rachael said the following at 8:06 AM on May 10:
Kaj,
Nice idea. I've never checked a list of registered sex offenders, but I do think they're all over the place. But yeah if I had a choice not to live to one who lived almost next-door to me, that would be good. That said, there are probably tons living in a short radius of where you live, if you live in a big city.
Just FYI. I once heard someone say she checked something and seemed to find tons in a small radius around where she lived, or something...
I don't think I want to check to see how many might be living near me... I'd rather not know. But it would be totally important if one had kids, or it could be important as one looks for a place to live, especially if it's a house and not an apartment...
23. whs said the following at 9:45 AM on May 10:
Budget, budget, budget your life. This isn't just a good idea it is essential. On the small scale you do not have control over how much money is coming in; you do control how much is spent.
Don't let the admonition to put your money into mortgage payments instead of rent payments push you to make a decision your budget can't handle.
24. Leah said the following at 9:59 AM on May 10:
Hehehe.
I haven't read the article, but... my Dad is very practical and I've learnt lots of lessons from the way he's designed our house which I'll also be looking for in my future house (when we buy one!)
And now I'll go and read the article itself and give you feedback on that ;P I promise :D
25. Leah said the following at 10:15 AM on May 10:
#7- Yes! When my fiance and I were looking for a place, there were several places we simply didn't look at because he would have to drive right across town to get to work. The houses might have been a bit cheaper (rent) but we probably would have made up the difference in petrol :P
#9- lol. I shop around for EVERYTHING. I hope I'm as good at finding a good loan as I am finding good espresso machine or coffee table!
26. Kimberly Eddy said the following at 11:01 AM on May 10:
I thought it was a great article, full of good, sound advice that we could have used when we bought our first house 16 years ago! :-)
A few things I'd add to the list:
Definitely check the sex offender registry. We have an repeat offender, convicted rapist and child molester living next door to us (he is retarded, and lives with his elderly mother). It's very unnerving, especially since he likes to come over and say hi even when I'm as deliberately rude as I possibly can be to him. Having him next to us also made it difficult to sell our home back when my husband was working out of state. Everyone who looked at the house loved it but then told the Realtor they did a Megan's law check.
I would check to see if there are any homeowner's association rules that would be a bother. We had a problem with this with our first house...we had the "wrong" swingset for our kids, we had to buy a new tool shed, and we got fined for not mowing the often-flooded drainage ditch behind our house, not to mention getting fined when my husband's car broke down and leaked oil. Check out the rules!
Along those lines, check out zoning restrictions. I have been self employed most of my adult life, and some places are very strict about having a home business in certain neighborhoods, even if your type of business isn't going to affect anyone but you, when you apply for a business license. Thankfully my current house isn't a problem in that area, but previous ones were.
I like the suggestions about wide open fields, but don't just check the zoning. It can always be rezoned, as the beautiful meadow behind my house was, and that can also affect your home and what you do on your property. We live semi-rural, and after the rezoning, we were no longer allowed to raise a small flock of chickens and turkeys, which was a business one of my daughters' had.
27. Louise said the following at 3:01 PM on May 10:
Comment 11 brings up a good point re avoiding making a home purchasing decision based on emotions.
When I was getting divorced and knew I would soon have to move I fell "in love" with a duplex I saw during an open house showing.
Well, the property was sold before I was ready to buy, which though disappointing at the time turned out to be a blessing.
The home I eventually purchased a few months later (and still own now) has several advantages over the other one, which I immediately realized even though I did not "fall in love" with it when I first toured the house!
28. NeedACatchyName said the following at 9:22 PM on May 10:
Great article and great comments! I recently bought a house, and fortunately already knew most of the things in this article. A few more pieces of advice I can give:
1) #9 is the best piece of advice in the entire article. Everything with a loan is negotiable, from closing costs to initiation fees to interest rates. As a result, you need to shop around a lot for the best possible deal. I would recommend that you start shopping for mortgages as soon as you start looking at houses. That may seem awfully early, but it'll really pay off in the long run. Of course, you won't be able to determine exact interest rates until you get closer to closing a loan, since those can change daily, but shopping around early can at least get you a good idea as to who's going to have the best deal when you do start nailing down a loan.
2) Call me old fashioned, but I still like the idea of 20% down being a good rule. I realize that not everyone can do it, but I would do whatever necessary (including delaying house shopping) to get that 20% saved up. Not only do you avoid PMI, but you have far more leverage when negotiating a loan (see the previous point).
3) Prepare to make an offer. Once your offer is accepted, you probably have around thirty days before closing (time may vary by local conventions). That gives you thirty days to do all the inspections, loan work, work out finances, etc. and it can be a hectic thirty days. So you need to be prepared for this. Get your loan contacts lined up so your first meeting with the loan officer isn't when you're applying for a loan. Get all of the necessary paperwork together to apply for a loan. Get a list of home inspectors and their qualifications. There are more things, but you get the idea. Ideally you should prepare as much as possible before making an offer, or else every day between making the offer and closing will be very, very hectic.
4) Drive the commute before you make an offer. Wake up early, drive to the house and plan on arriving around when you think you would leave from the house for your morning commute, and drive it. Then, after work, drive to the house before you go to your current residence to check the evening commute. It takes a little time, but it's well worth it.
5) #11 is also good. As a general rule, resellability (is that even a word?) needs to be as important a factor for you as how much you like the house.
6) And the best piece of advice I've ever been given about buying a home: never, ever refer to a place as "my house" until after closing. :) Note that's after closing, not after an offer is accepted. There are just too many things that can go wrong for you to place such an emotional investment in a place that you don't yet own.
Once you do own it however, enjoy it!
29. NeedACatchyName said the following at 9:28 PM on May 10:
Oh, and I'll echo Anna's advice in comment #11 about shopping around for furniture. If you've never been before, furniture shopping is weird. I have never in my entire life seen a product with so many price fluctuations from store to store. It's not uncommon to see the same couch for hundreds of dollars less a mile down the road. So grab your phone book, and hit as many stores as possible, because that's about the only way to get a good deal because of price fluctuations. Also, don't forget that furniture prices can sometimes be negotiable, though you'll likely have more luck with that at small, independent stores than at major chains. And factor in delivery costs when buying if you're getting it delivered. Some places may be slightly higher in furniture costs but have cheaper or free delivery making them a better deal. Finally, don't forget that it can take time for the furniture you ordered to arrive, so you might want to shop before moving or you may spend a few weeks watching TV sitting on the floor. :)
30. Suzanne said the following at 11:08 PM on May 10:
DannieA's (#20) point about credit scores got me thinking. This is slightly off-topic, but I'm curious to know what I can do to better my credit rating. I recently applied for a higher limit on a credit card. I wanted to apply for a one that would give me airmiles, but was rejected because they said I didn't have credit. Not bad credit, just no credit, or insufficient.
I pay almost everything in cash- bought my car, used, with cash, pay my credit card bill at the end of the month, and, happily, never had student loans. The only things I really pay for now are the gas, electric, and internet bills.
I thought I was being smart to pay everything so promptly. But now I realize I'm making things harder on myself because I just don't have much of a credit history at all. What can I do to improve that?
31. Darren Hom said the following at 3:17 PM on May 11:
For sex offender info and other useful stats, visit:
http://www.city-data.com/
and type in the city or ZIP code you're interested in.
I can't reiterate this enough: Be careful when you buy. Houses can and are declining in value in most parts of the country. My parent's house has declined 15% in one year. If they'd put 20% down, they would have lost their entire down payment once real estate commissions, closing costs, and other costs of sale were taken into account.
Have fun house shopping!
32. John the Aggie said the following at 3:22 PM on May 11:
Jo - those prices are crazy! With the conversion of roughly two dollars to one pound, you're saying that a 1 bedroom flat is $200,000, and a 2 Bed would be $400,000. I've heard that houses are expensive in California, but here in Texas things are much cheaper.
A three bedroom house in a nice neighborhood will go for under $200,000 here, and $400,000 will get you a 5 bedroom custom home with swimming pool, media room, and granite countertops...
So I guess that means location really does matter!
33. Lyn said the following at 6:57 AM on May 12:
I wanted to talk about how buying a home from a Christian world view might change one's perspective. There was a lot of practical wisdom in the article, but sometimes we are called to be fools for Christ. I have participated in several urban projects with churches in St. Louis, MO and Tampa and Orlando, Fl, where church members (black and white) have intentionally moved back into the inner city to bring hope to very desperate places. For these individuals, many of them married with children, that meant not moving into a "quiet neighborhood with good schools and parks."
Jesus spent most of his time among the poor. The book of Acts puts great emphasis on the fact that the early church consisted of many people from very different racial and cultural backgrounds living together in community and working through their differences.
How could our values in choosing a house change if we took seriously the command to love our neighbor--who is are Samaritan?
A great book about Christians bring hope to the urban poor is "Celebrating the Gospel in Urban America" by Robert Lupton.
34. Lyn said the following at 6:59 AM on May 12:
I wanted to talk about how buying a home from a Christian world view might change one's perspective. There was a lot of practical wisdom in the article, but sometimes we are called to be fools for Christ. I have participated in several urban projects with churches in St. Louis, MO and Tampa and Orlando, Fl, where church members (black and white) have intentionally moved back into the inner city to bring hope to very desperate places. For these individuals, many of them married with children, that meant not moving into a "quiet neighborhood with good schools and parks."
Jesus spent most of his time among the poor. The book of Acts puts great emphasis on the fact that the early church consisted of many people from very different racial and cultural backgrounds living together in community and working through their differences.
How could our values in choosing a house change if we took seriously the command to love our neighbor--who is are Samaritan?
A great book about Christians bring hope to the urban poor is "Celebrating the Gospel in Urban America" by Robert Lupton.
35. Lyn said the following at 7:28 AM on May 12:
Correction: The full title of the book is "Theirs is the Kingdom: Celebrating the Gospel in Urban America"
36. Jo said the following at 1:27 PM on May 12:
John the Aggie: (what's an Aggie?)
"Jo - those prices are crazy!"
Tell me about it. Check www.findaproperty.com if you don't believe me, London prices are even more ridiculous!
"A three bedroom house in a nice neighborhood will go for under $200,000 here, and $400,000 will get you a 5 bedroom custom home with swimming pool, media room, and granite countertops..."
Maybe I need to move to Texas...
37. BDB said the following at 2:33 PM on May 12:
Suzanne (#30) wrote:
>>I pay almost everything in cash- bought my car, used, with cash, pay my credit card bill at the end of the month, and, happily, never had student loans.<<
Yep - the credit-rating companies are measuring how people handle access to credit - it's not the same as good money management. Really they want to know that if you borrow, you pay it back. Which means that it needs to be documented in a loan.
Part of what improved my credit score was getting student loans (that were subsidized while I was in school) then paying them off early. The same thing with a car loan - due to a dispute with the lender, I paid one off more than a year early. Surprise, surprise, this made my "auto" credit rating great the next time around - I got 0.9% financing.
Another thing to consider is American Express. Their regular card forces you to pay it off at the end of the month. It's a good way to enforce discipline. I got one in college. Now, it helps a lot because it shows a long credit history. This made it MUCH easier to buy a house.
And regards to the comments about loans - I strongly urge people to go through the loan qualfication process before you ever get close to putting an offer on a house. You should walk in the door already pre-approved for a mortgage amount, and already know how much $$ you need to put down. You'll need $1000-$5000 in cash at a minimum just to put an offer on a house. So, your first step is to save that much money in a savings account. Saving that first $1000 is excruciating. But it's critical to show a lender that you have the discipline to save. And you can show that discipline by giving to a 401(k), too. While I recommend against using money from a retirement plan for a real estate transaction, each of my lenders wanted to see my 401(k) balance as proof of my ability to save. This also becomes a last-ditch hedge against unemployment.
38. niki said the following at 2:55 PM on May 12:
Re: Mike Theemling (#15)
Quote:
"In general I have no sympathy for those who complain about high gas prices and yet drive a gas guzzling SUV. No one twisted their arms to do so."
I realize it's the exception rather than the rule, but my arm was figuratively twisted to drive the awful gas-guzzling monster I'm trapped in each day to and fro work.
At 17, I paid for one half the cost of my car (a 1993 Toyota Camry. Awesome on gas.) Parents paid the other half. It was registered in their names so that we could benefit from low insurance costs.
This gave them the power to do whatever they liked with the car. When I was 20, my brother "inherited" my car cost-free and I was given the Jeep. Not only am I trapped by gas prices, but the costs of maintenance and insurance for this vehicle are disgusting.
The worst part is, when you're trapped in this situation, you are really and truly trapped. The Jeep is a '99 with a lot of mileage on it. Selling it now would leave me with maybe enough money for a nice mountain bike.
Can't ride that on the expressway.
39. niki said the following at 3:01 PM on May 12:
In reference to my previous comment, (I just realized) that I would like to add:
I've found a way out (at least to a degree); this weekend, actually, I am moving much closer to work and will be taking public transportation for my commute. Is my arm still twisted? Yes, but not broken!
[In an effort to direct this comment back to the original topic, this is the first time moving out of home since college, and I'll be renting. But I've worked out a rough budget of the next five years, assuming the worst case scenario that I'll remain single; In about five years I would be able to purchase a small home in a decent area. This article will be bookmarked for those years and beyond!]
Also, I'd like to add that my parents were doing the best that they could for us when they made the decision about the cars. They never intended to twist any arms.
40. Rachael said the following at 5:46 PM on May 12:
Re: furniture
Tip #1: -->Craigslist! I found my apartment this way too :).
Tip #2: -->accept free furniture from others. My furniture comes from craigslist, random people, what used to belong to my grandma, and from my childhood. I even got my microwave for free when buying folding chairs from someone off craigslist. Granted, it is not the cleanest ... :)
41. DannieA said the following at 5:54 PM on May 12:
Jo--Aggie is for Texas A&M...I"m sure John can explain more
The only problem moving to Texas for me up to this point was that I would take a huge paycut...so cheaper housing yeah...but smaller paycheck too.
Might not be the case if you work for a business company though!
42. Kellie said the following at 6:35 PM on May 12:
Sometimes living far out (#7) is worth it. Much of the area is a flood plain, with a 25% chance of flooding in the next 30 years (not to mention very expensive flood insurance). We decided it wasn't worth the risk.
43. Mike Theemling said the following at 6:52 PM on May 12:
niki,
I'm sorry to hear about your situation. It sounds like to me that money and family collided and you ended up with the fuzzy end of the lollipop.
"It was registered in their names so that we could benefit from low insurance costs. This gave them the power to do whatever they liked with the car."
Yeah, if it was Titled in their names then yes, they had all the power. I would be very wary whenever anyone owns the Title other than myself (or the bank).
"When I was 20, my brother 'inherited' my car cost-free and I was given the Jeep."
Did your parents give you any prior warning they were planning on doing this?? I certainly hope so. Regardless, if you have a steady income (and/or have saved up a bunch) I would seriously consider selling the Jeep, and buying yourself a nice, reliable used economy sedan like a Honda Civic or Toyota Corolla. Not only will save on gas, but probably insurance (because it doesn't have 4WD) and cost of maintenance.
Suzanne,
Basically a credit score is based upon the following:
35% - Payment history (do you pay your bills on time?)
30% - Outstanding debt (how much debt do you carry?)
15% - Length of time you've had credit (this may be what's causing some hiccups)
10% - Number of inquires to your credit. The more inquires, the worse.
10% - Types of credit. Kind of a nebulous category
(Source: Howstuffworks.com)
To begin, I would pull up your credit report (free once a year) and see if there are any black marks on your credit report and correct them immediately.
Once that's done, work on what debt you have. Do you pay off your credit cards in full each month (those that you have)? How much is your balance in comparison to the limit given?
Whatever you do, DON'T cancel your old cards. Repeat: DO NOT CANCEL YOUR OLD CREDIT CARDS. Just keep a $0 balance on them. And also don't apply for more cards solely to raise your score (but if they serve a purpose go ahead). Just ask your current card company to raise your current limit.
Other than that, you are still in good shape I'd say.
44. Michele said the following at 10:57 PM on May 12:
If y'all consider moving to Texas, make sure you look into property taxes. And not just what the owner paid over the last couple of years, but also what kind of growth in appraisals and tax rates there has been.
My husband and I are house-shopping, and taxes are our #1 concern. Property taxes are mostly levied by the school districts - and a better school district doesn't always mean a higher rate. Plus, with all the growth in our suburbs (housing crisis? what housing crisis?), taxes are going up astronomically. Yeah, I want a place with access to the freeways and to be close church, etc; but which is worse, a higher bill at the gas pump or $4000 in taxes on a modest, unimproved 3/2 home (with a guaranteed 10% increase next year?)?
Sorry, y'all, I get upset about taxes. It's the #1 impediment to home ownership in our state. I implore you, take a close look at tax trends before buying a home anywhere - and consider, will you essentially be renting from the government even after you pay off your mortgage 25-30 years from now?
Heather, I can't thank you enough for these articles. I shared this one with my husband and it's creating some great conversations and helping us get our ducks in a row. All the resources you pointed out are brilliant, too. Thank you!!!
45. obewan said the following at 6:26 AM on May 13:
15 Mike Theemling had the following to say on May 9 at 4:05 PM:
>>”The cause of the oil price increases isn't a lack of supply, it's an increase in demand (worldwide).”<<
I agree partially, but most oil industry experts say that the supply can not be increased much beyond where we are at now, and yes demand will only get worse with India and China and their booming automotive demand.
My point was that the 2% we get from ethanol production does not even come close to backfilling the losses imposed on us by SUV drivers, and that small ethanol production has caused a huge ripple effect in the world food supply. Yes, we could shift the blame to India or China too, but blame is blame. People in China may in fact need their 30 or 40 mpg gas miser. People in Jacksonville, FL who go to my church, live 30 miles from work, and drive a Hummer H2 (at 8mpg) ALONE to work, do not need to do so – and I know a few.
Regarding sex offender registers, I just bought a brand new 3-bedroom condo, and a sex offender moved into the complex. It does not matter if you check, the neighborhood can always change. Also, remember not all sex offenders are dangerous. I think the guy in our neighborhood just had a consensual liaison with his underage high school girlfriend. He was no monster, and he had his whole life ruined – along with the real estate values of every home he will ever move to.
46. Loris said the following at 7:10 AM on May 13:
Niki,
Along the lines of what Mike Theemling #43 said, try a nice used Toyota Echo. They have more leg room than the Corolla does with the same ridiculously good gas mileage, plus a whopping cute factor. I don't plan to trade in my 2001 Roxy edition until the body rusts off. Toyotas run forever!
47. Louise said the following at 7:38 AM on May 13:
A sex offender lives across my cul-de-sac.
I researched him online, and his scenario is the same as comment 45.
Also, re comment 37, saving money in order to achieve an important goal need not be "excrutiating".
Perhaps occasionally difficult, but keeping the goal in mind should make the actual work easier.
48. John D. said the following at 9:24 AM on May 13:
Michele (post 44) asks "will you essentially be renting from the government even after you pay off your mortgage 25-30 years from now?"
Even if you "own" your home free and clear, you are renting from the government.
If you rent an apartment and fail to pay your rent, eventually you will be evicted.
If you "own" a house and fail to pay your property taxes, eventually your house will be seized and sold at auction.
Bottom line: "ownership" is an illusion.
In any case, you take nothing with you when you leave this life. There are no pockets in a shroud. Use the things of this world as though not possessing them, for this world in its present form is passing away.
49. kaj said the following at 11:02 AM on May 13:
Re: John D.'s comment (#48) on "ownership is an illusion:"
Maybe Abraham had a good idea in that even though he was wealthy enough to buy a house, he and his household lived in tents all his life in Canaan. The only real estate he owned was the family cemetery--and he paid that with cash (Genesis 23:14-20).
Now, tents aren't usually practical for most of North America, let alone finding people who will give you permission to camp for years on their land.
But perhaps living in tents for Abraham was a way of showing what his priorities were. (Hebrews 11:13-16).
Again, I'm not saying owning a home is wrong. My intentions (No pun intended. Really) are to give another angle to discuss, especially with Heather talking about a Christian/Biblical worldview in matters of real estate.
50. Michele said the following at 12:19 PM on May 13:
John D (#48):
My question in comment #44 was rhetorical, but thank you for making your point. In one way or another, in life, we are always "leasing" or "renting" - we are not permanently owning.
51. DannieA said the following at 12:39 PM on May 13:
re: comments 48 and 49
It is very TRUE that we should not hold on to materials of this world.
Having said that...when you are able to in a mature manner, "owning" a home provides better stability.
If you get a fixed 30 year mortgage...you know what your payments will be for the long haul. With rent, leases almost always go up and significantly forcing you to either pay higher rent or move to a less secure neighborhood due to cost.
In all things we should be good stewards of the money we have been blessed with through a paycheck...whether it is renting or owning, only you can decide what is good and better. (i.e. New York City...almost all people are renters)
52. obewan said the following at 1:11 PM on May 13:
48. John D. had the following to say on May 13 at 9:24 AM:
>>”Even if you "own" your home free and clear, you are renting from the government.”<<
That has been my philosophy for a long time now. I waited 20 years to buy. I had the money long ago, but did not want to pay the high property taxes. I was way ahead for only one person to invest in the stock market, have no taxes, and rent with the investment income from the principal that could have been used to buy a home.
I have seen 4 housing markets crash in 4 different parts of the country too – when people say you can never go bottom up on real estate.
I especially made out because I lived with roommates until age 35 for less money than I would have paid in property taxes. Not only did I avoid the huge real estate crash in New England, but also I was able to earn 12.5% in the stock market with the cash that would have been used to buy a home.
Some states I have lived in even offer a property tax deduction (from state income tax) for the “portion” of rent that goes to pay the landlord’s property tax.
The other thing to consider (if you are in a field where there are layoffs every 3-5 years like me) is that it pays to be mobile – employers even ask in job interviews. I got my present position (during a very long layoff) mainly because I could be available ready to start work in only 7 days – with an 1800-mile move. I know people in Michigan who during the 500,000 job loss period could not take an out of state job because they could not sell their homes, and many who tried to stay wound up unemployed and bankrupt and eventually had their homes foreclosed on.
53. Kelly said the following at 11:26 AM on May 14:
Interesting article... and thankfully I did most things "right"! My family were a huge help/source of advice for me, a single woman, buying her own home.
My problem was the size of the house. I wanted an apartment/townhouse, what I ended up with was a 4-bedroom house with pool. Plenty of room for kids and family in the future, but for now, it's just big and empty. And SO MUCH WORK to maintain.
So if you're single, think of that too. The bigger the house, the more work to be done, and I have had to lean on friends/family A LOT to help me do all of the traditionally "male" odd jobs that I had absolutely no idea where to even start! (e.g. fixing a spa pump.)
54. BDB said the following at 2:37 PM on May 14:
Kelly (#53) wrote:
>>(e.g. fixing a spa pump.)<<
Yeah, my home inspector said my backyard needed a pool. I told him it was just big enough for a BBQ.
I did need to figure out why my fountain stopped working. Something about snails in the timer housing...(SIGH)
55. Rachael said the following at 11:24 PM on May 14:
Kelly: "My problem was the size of the house. I wanted an apartment/townhouse, what I ended up with was a 4-bedroom house with pool."
-->Wanna trade?
56. Kelly said the following at 3:40 AM on May 15:
BDB said: "I did need to figure out why my fountain stopped working. "
That's something else I have learned (the hard way) - the more 'features' a house has, the more can go wrong. It really is best to live simply!
57. Christina (in green) said the following at 7:16 AM on May 15:
I want a fixer upper...
I have no problems living in a home that lacks some asthetic taste. However, I'm not quite sure where to start-stop with those.
When is too much fixer-up going to be incongruent to its worth and my time?
58. BDB said the following at 2:45 PM on May 15:
Christina (#57) wrote:
>>When is too much fixer-up going to be incongruent to its worth and my time?<<
Well, you get the time quote from the contractor, add two weeks, then double it and add $100,000 to the expected cost...and compare to your bank account...
59. Kelly said the following at 3:16 AM on May 16:
Rachael said: "-->Wanna trade?"
LOL, sure! (If you can handle a house out in the suburbs with way-too-long of a commute. ;)
I wonder if there's any such thing as the perfect house?