Home Buying Tips

[BdoUK]

Well I have finally started the process of looking for my first home. I met with a mortgage broker and real estate agent yesterday and I have been preapproved for a loan that would allow me to buy in the price range I was looking for.

 

Do any of you guys have general suggestions when it comes to buying a home? I know that I will need to get a home inspection when I decide on the home I want, but are there any fees related to the mortgage I should be suspicious of? Also any tips on negotiating a final selling price of the home?

 

I'm really excited that in a few short months I won't be wasting my money on rent and I'll be building a nice amount of equity. The Lexington housing market seems to be pretty strong despite the downturn in national home sales. I should be able to avoid PMI with a 20% down payment.

[kelley]

I wish we'd bought more points and lowered our interest rate even more then we did.

 

Have a check list of your Have to haves, nice to haves, etc. Try to keep your priorities in line, its very easy to go crazy and spend more then you want.

 

For me a hard part was trying to imagine how things would look if after i bought it and changed the paint, put in my furniture, etc. I took 30 - 50 pics of almost every house we looked at.

 

And finally DON'T RUSH IT! We looked for almost a year before we found what we bought. Better to buy what you want then regret it a few months down the line.

[Camp]

Take notes (or photos if the current owner allows). Draw a quick sketch of the floorplan. It will help you to remember the details after seeing multiple houses.

[Cyberwoo]

The only advice I give people is take your time. I passed up on at least a few houses that I was close to buying and I'm so glad I did. I finally found something that wound up being about 1 mile from work which has been a huge bonus. I hate wasting time commuting and being able to come home for lunch break is a really nice perk. So ya take your time, make sure you have a reputable home inspector look at the home before buying, and have fun with the process. Don't let it become stressfull.

[weremichael]

All great advice. I can't stress that you should have fun enough. We had a great time going through a ton of houses before we found our home. Woo is absolutely right the reputable home inspector. We were really glad to be reassured us that the home we chose is well built and well maintained. My wife had a melt down before we signed the mortgage (it's the only debt we have) but I just looked at it as paying rent to myself.

[Robot Monkey]

Endeavor to avoid houses built on ancient burial grounds.

[foogledricks]

1. Take family members with you to see the house before committing, especially ones with building type experience. They'll think of things that you did not. Giving you more questions to ask the realestate agent.
   
2. Beware of manufactured urgency. The selling agent will try to make the purchase of a house you're interested in urgent (i.e. they'll tell you there is an open house tomorrow to make you panic about the house you're interested in)
   
3. Pools are bad unless you really want one. Won't get into the details, but don't look at a pool as a bonus unless it is something that you want, not a nice-to-have. I'll elaborate if you want.
   
4. Town Water vs. Well, Septic vs. Town Sewage, gas vs. oil, all have their pluses and minus. Look out for what your house has and investigate.
   
5. Big houses with High ceilings costs lots to heat and cool.
   
6. How far will you be from Home Depot

[exile]

Take a Digicam along with drawing paper.

[Dave C]

reputable home inspector

 

This is key. Use one of your own choosing, not one that is "affiliated" with the real estate agency. There were many things that were overlooked that my construction worker friend noticed. Once we agreed on a selling price, I made sure all the things that were "missed" by the inspector were corrected by the owner prior to the signing.

 

Beware of freshly painted walls and ceilings. The sellers could be trying to hide reoccuring cracks and leaks, mold / water damage. During the walk through, open and close all windows.

 

Also, with regards to your budget, factor in expenses such as multiple shopping sprees at home depot. You don't realize how much crap you need to maintain a home until you own one.

 

Visit the home at different days of the week and at different times of the day to get a good feel of the neighborhood.

 

Good luck & enjoy!!!

[kelley]

Also if you can visit the house when it rains, see how well the yard handles water. Also use Google's satellite views to see if you are close to airports, trains, highways, etc.

[Dave C]

Also if you can visit the house when it rains, see how well the yard handles water.

 

Good point. Check for overflowing gutters. It's a sign that the gutters aren't pitched correctly which could result in water backing up into the sofit / walls.

[Sparkz]

Zillow.com may have some listings up for the Lexington area. That may give you some indication if the price is reasonable. Also, have your real estate agent do some work. Be sure to get a comparitve market assesstment (or something like that, maybe its competitive market assessment?). Anyway, the real estate agent should be able to get a listing of recent sales in the area you are looking to give you an idea of what a 3 bedroom, 2 bath, quarter acre size lot is going for (or whatever kind of property you choose).

 

Even if you don't have any children, a house in a good school district may be a determining factor for resale value.

 

Home warranties are available to give you peace of mind. I know some people who have used theirs a lot. We opted not to buy one because we had a pretty thorough inspection done on the house and learned that all of the appliances and HVAC unit were in good shape.

[JTello]

6. How far will you be from Home Depot

 

Yes, this is important. You want to be as far away from Home Depot as possible. Home Depot has max prices on just about everything they sell, and their customer service is absolutely terrible. Good advice Keith!

 

I should be able to avoid PMI with a 20% down payment.

I don't know a better way to give this advice, so here's my quick story of how we had little money, bought a house, and ended up saving a lot of money...

 

We ended up finding a good deal on a house that was under market value because the owners were looking to avoid foreclosure (we offered and closed on our house in one crazy week) but we still fell short of having the 20% down. We were lucky enough that our housing market was strong enough that within 1 years time we were able to refinance and save a lot of money in various ways.

 

1. We lowered our interest rate ( It was already good, but got better because we now had a home, which meant we had even better credit scores and credit history. Buying a home immediately pumps both up, which was a nice surprise.)

 

2. The combined equity from the strong market and the under value at which we had bought the house allowed us to eliminate the PMI. (Although we eliminated the PMI, we then choose to keep our payments the same, thus the money that had been going to PMI is now going to the principal and we are paying down much quicker.)

 

3. Our refinance was through our credit union and we now have bi-monthly auto-payments.

The keys here are that,...

- Auto-payments generally allow for a slightly discounted interest rate

- The bi-monthly payments (half on the 1st of the month & half on the 15th) allow for some of the money that you pay in interest each month to instead go toward the principle. We calculated it and it basically ends up adding an extra month of payment to our mortgage each year. I.E. We get 13 months of principal pay down out of 12 months. (note: bi-monthly payments aren't offered everywhere, but your best shot at finding them are at a local credit union.)

 

4. When we refinanced we went from a 30 year mortgage to a 20 year mortgage. To go from a 30 to a 20 year obviously requires larger payments, but again we cut more interest by going to a 20 year. So by taking that savings, add cutting off the PMI and the other interest rate cuts, combined with the bi-monthly savings we were able to actually keep that same payment amount we had been making on the 30 year.

 

How much does all this gibberish add up to?

We save just over $100,000 over the life of the mortgage and we only have 18 years left instead of 28. :rock

 

I've also repeatedly heard that some of the best investment advice is to make extra payments to the principal of your mortgage whenever possible, and so we do try to do that when we can. I'd love to be free of the mortgage when our child goes to college in 18 years. :tu

 

I know nothing stated above is in the form of advice, but hopefully you can apply some of it toward some savings for yourself Brandon.

 

As noted by others already, a through inspection is a necessity.

Some things to look for,...

- What condition is the roof in? A leaky roof can lead to expensive repairs and costs.

- Any signs of rodents, insects and termite damage.

- What's the size of the power box. With so much technology and appliances today you don't want to end up at the breaker box every time you fire up the microwave and vacuum at the same time.

- Does water seep in when it's wet out, and if there's a basement is there a sump pump. A sump pump would indicate that they may have water seepage in the past.

- Take notice of the neighbors. Not that you can do much about the neighbors, but you also don't want to end up two doors down from the guys who has 16 Harley Davidson's in his garage. ( Ok, maybe you want to be his friend, but you don't want to be his neighbor when he and 6 of his friends fires them up at 7:30am on Sunday morning. )

- Also, talking to friendly neighbors can help you find out about the neighborhood and the history of the house that you might not find elsewhere.

 

Ok, I'm tired of typing, I'll check back later. Good luck Brandon!

[ChrisBardon]

Lots of good advice here. I've only bought one house so far, and it was brand new construction, so we really had a pretty different set of criteria. We also bought pretty quickly (about four days from start to finish), but we knew the area we wanted, and found the right place pretty quickly). As for the basic stuff though, keep in mind how much you'll have to put into repairs/renovations early on. Things like age of the roof, furnace, etc are all important to consider. The other thing to check out is what type of insulation/water heater/windows etc you have in the house, which might give you an idea of how much operating costs will be. Might be better to spend more up front for a house that'll cost less to keep going in the long term.

 

I'll also echo the idea of paying against the principal as often as you can. Our mortgage lets you pay up to 20% of the principal in a lump sum each year, as well as increase your payments by 20%. We're planning on doing as much of these as possible, cause the sooner the mortgage gets paid off, the sooner we can be rid of that gigantic drain on each paycheck.

 

If I underestimated anything though, it was closing costs. I didn't have to pay a real estate agent or anything, but between legal fees, land transfer taxes, grading deposits, and the million other things that creep in there, it gets expensive. There's also moving costs, and then the price of things like new appliances that go above and beyond your mortgage down payment.

[BdoUK]

Wow guys thanks for all the wonderful advice. I am just now starting the process and I wish I had started a bit sooner, but oh well. I know the area of town I want to live in so that has really helped me narrow my search for a home. When I met with my real estate agent I gave him some criteria (fenced-in backyard, good size living room) that should help narrow the search even further.

 

The total out-of-pocket downpayment will be 10% but my mortgage broker said she could do a 80-10 loan in order to avoid PMI. Luckily the second part of the mortgage would be through my current bank and I would get a slight break on the rate because I have a checking account with them.

 

What really shocked me (like it did Chris) were all the closing costs involved with buying a home. No wonder banks and mortgage brokers have such nice buildings .

 

My current plan is to make one extra payment each year toward the principle of my mortgage. This should cut my 30 year mortgage down to around 18 years which will be nice. The other thing I forgot to mention is I will have at least two roommates for the foreseable (2 years) future. That will help immensly with my mortgage payment and I should be able to continue to save heavily while they live with me.

 

Finally, I've started to research some home inspectors in the area so that I can get a good idea about what needs to be fixed once I locate a property. My father is pretty handy around the house himself so I'll likely ask him to give the place a once-over before I finally decide to buy.

 

Keep the tips coming. I never realized how overwhelming this whole process was until now!

[Baiter]

You may want to consider living in the house for 2-4 years, then renting it out. You get the best interest rates having an owner occupied house, and you can still leverage any equity you have in the house without selling by getting a home equity loan, which you can then use as a down payment on your next house. This isn't something you have to decide on immediately, but could change your paramaters on acceptible housing a bit.

 

Get your mortgage broker on the phone, and ask him how he gets paid. Make no mistake about it, you're paying his salary, but you need to know which line on those documents represents his cut. Quite often you'll find something called a yield spread premium which is basically a kick back from the bank for giving you a higher mortgage rate then you really should have, the first broker that I contacted had 17k on this line. :eh

 

A lot of people recommend consulting a real estate attorney. It's your call, but it could give you some piece of mind.

 

Lastly I have found the best interest rates at http://www.penfed.org I just refinanced my heloc last week @ 5.99% with $0.00 closing costs. :rock

[BdoUK]

Good point about the credit union. I need to check with my employer's credit union and see what the rates are like. If I could get reduced closing costs that would be very nice!

[JTello]

On the mortgage broker issue, I have no idea if using a mortgage broker is a good idea or not, but I can say our experience with one was down right scary.

 

We had first applied via Ameriquest ( I don't think they are so hot now, but age and wisdom take time ) . Anyway, not having a great starting point down payment wise and credit wise (good, but not great) they said they wouldn't be able to do much for us. They suggested a mortgage broker in our area might help.

 

That referral turned out to be awful. The guy was the prototypical mortgage shark. We went into talks thinking "he was referred by Ameriquest, he must be ok. Well, to keep things short we heeded our suspicions and cut ties with him. (mind you this was that "make and offer and close in one week house" that we bought)

 

We sat in our car for a few minutes wondering what to do. We ended up hitting a local bank that had helped my mother in law when she bought. They were awesome, helped us close in the one week window at terms that we acceptable. Want to guess where we next saw that mortgage broker? On the news. His offices had been raided by the state police on charges of fraudulent lending practices.

 

BTW, the closing costs weren't bad at all. I'd have to look at the paper work to remember the numbers, but I know they wouldn't be describe as bad or exorbitant. Make sure to research what to expect in the closing costs and keep that list handy.

 

Oh, and mentioned earlier, use Google Earth to check out the neighborhood, but to get a closer look be sure to use Microsoft's Local Live, you'll get 4 directional views and you can get damn fine close views. But Google Earths far shots are better for town and city over views.

 

EDIT: One more thing, search for assessor websites for your area. OMG, the info you'll find on assessors websites is crazy, and invaluable.

[JTello]

Sorry, racking my brain and remembering things. The way to look at the Broker is as a middle man. If you can cut out the middle man you can cut out BS and potentially costs. If this is your first house you should be able to get into some kind of first time buyers program backed by the Fed. Now that I remember, we didn't even have the down payment, we just had the closing costs. Even that can be subsidized in ways. Research 1st time home buyer programs, especially Fed and state ones.

[foogledricks]

Something that people don't usually understand about buying points or paying down your principal:

 

• Most people own a property for SEVEN years. So the long term benefits you might get from a lower interest rate by buying points are partly lost when you refinance during the purchasing of a NEW house.
  
• Paying down your principal every month is only smart so far as you are incapable of managing your money. If and when you have the funds to completely pay off your mortgage, you are better off doing it then rather than giving even more money to the bank that you could be investing instead. I say this is poor money management because people take advantage of the monthly extra payment usually because they would spend that money all on videogames instead of investing it.
  
• Also, paying down your principal makes the most sense if you actually have a plan to pay off your mortgage ASAP. Just dumping money here and there hoping to reduce the span of your mortgage by 5-15 years doesn't make sense if you're going to refinance (via a new home purchase) before then.
  
• And depending on the above, there are tax implications to think about as well which are too much to get into here.
  
• And I mentioned investing, because sometimes it makes more sense to maintain a mortgage, write off the interest, and invest your surplus. THis is particularly true in the early years of a mortgage when most of it is interest.

[JTello]

Blah, blah,

have a plan

blah, blah.

 

Good points Keith. I'd say every situation is unique, and thus the key is to identify your goals, identify how to best meet them, and as found buried in your suggestions above, "have a plan."

[foogledricks]

I guess the best thing you can take away from my list, is if you're doing things for longterm, like paying down principal and buying points, be sure that there WILL BE A LONG TERM, because if you're onto a new house in seven years, your intentions are in vain, and you may be throwing away THOUSANDS of dollars by buying points or giving the bank extra money.

[BdoUK]

Just got back from looking at a few houses this afternoon. I really liked one of the homes. It appeared to be well maintained and had plenty of space and a nice sized backyard with privacy fence. It also had a sweet place downstairs for a home theater which is always a plus.

 

The second home I looked at was eliminated right away due to a number of factors (small backyard, not completely fenced). I was worried that I wouldn't be picky enough about certain things but after today I'm confident that I won't have any issue disqualifying homes that don't meet my needs.

 

Both homes were in a very nice neighborhood that I would love to live in. The one I liked was at the very top of my price bracket so I'm going to keep looking and making comparisons in other areas of town.

[General Zot]

Just two pieces of advice:

 

1 - During an inspection, always look at the foundation of the house inside and out, feel more than free to scrutinize any cracks you see there with a fine tooth comb. There are always little things that must be fixed in any new house, but the foundation isn't a thing - it's THE thing. Bad foundation = bad house.

 

2 - Use a buyer's broker if at all possible. Using a realtor whose company sells houses as well is just not a good idea. They make their money off the price of the home sale, so if they handle both the seller and you, who do you think is more likely to get shafted? Doesn't matter if it is the same person or not, if it is in the same office they will talk and both want the highest price possible for the commision. Most contracts even state explicitly that they work for the sellers, use them at your own peril. Buyer's broker. Look it up online and find one in your area. Can save you thousands before you even see a single house.

 

Good luck...

[BdoUK]

So did any of you guys have your homes tested for radon before making a purchase. I found a house that I really like but the radon levels are a bit high (EPA standards recommend levels of 4 or below, this home had a reading of 5.6). From what I know fixing a radon problem isn't exorbitantly expensive, but is this something I could get the seller to address?

 

Of course finding a home in Kentucky with low radon levels may be near to impossible. Apparently the soil around here is very conducive to producing radon gas.