This is something a little different. Over 6 years ago I wrote a post titled 5 More Things To Know About Buying A House. It was the follow up to an article I wrote for a client who owned a housing blog that was, obviously, titled 5 Things To Know About Buying A House. That blog is now gone and, though I could probably try to find that post, I think it’s more important to write an almost entirely new blog post that incorporates some of what I’d written before and add 5 new things that I feel are important for potential new home owners to know.
The reason I’m calling these “real” things is because I have a guest post here from 2012 when I accepted them titled Top 5 House Buying Tips that, while not bad, only had one tip that I’d have ever written. Since I don’t accept guest posts any longer, I thought it was time to be real in the things you should consider before making such a crucial move.
1. Why do you want a house?
This is a very important question you need to ask yourself, or that you and your significant other should discuss. The process of trying to find the right house or having one built can be very tiring and stressful. You don’t want to put yourself through it if you’re not really interested in buying one.
I never wanted to buy a house because I’d rarely lived in one throughout my life. I was content with apartment living, and my wife and I were living in a very nice 3-bedroom apartment. What happened was within the first year after we got married her friends started putting it into her mind that we should buy a house. She mentioned it to me, even knowing my reluctance, and I decided I’d go ahead and see what it was all about.
Don’t buy a house because someone tells you it’s a great investment; that statement’s not true unless you’re buying a million dollar house. Even if your house appreciates in value over the years, you’ve probably put more money into the house that, along with paying your mortgage, will end up with you taking a loss.
Although I love my house now, if I’d never had one I probably would have been very happy; I’ll tell you why in another point further down.
2. Can you afford to buy a house?
Wanting to buy a house and being able to afford one are two different things. I’m going to tell you a couple of dirty little secrets that you might not hear anywhere else.
The first secret is that the first realtor you visit to see how much house you can afford is probably going to give you a figure that you really can’t afford. When my wife and I met ours, he did some calculations and said we could afford to buy a house as much as $275,000. At the time, our combined income was around $75,000 a year. That didn’t make any sense at all to me, so we never pursued any houses close to that amount, although we did look at a couple just to see what we might have been missing (some of them were fantastic!).
The second secret is that if you’re a new home buyer you’re actually going to end up paying for two things; that’s where it gets tricky. The first is actually the mortgage; the second is escrow. Escrow is what you pay to whomever finances your home loan to pay your state and property taxes.
Say you’ve been told that your mortgage payment is around $575 a month; that sounds pretty affordable doesn’t it? Depending on where you live, your monthly escrow could be anywhere from an extra $300 to $1,000 a month. Most of the time no one tells you about that part of your monthly payment until you’re sitting down getting ready to sign the papers; talk about sticker shock!
The best way to figure out if you can afford an house is to take what you’re paying for rent and double that. Once you’ve done that, look at what you’re paying for your utilities and, unless they’re included in your rent already, double that also. All your other normal bills will pretty much stay the same, so looking at that initial figure will give you a quick idea of the kind of money you might need to pay for a house you’ll like.
By the way, to be fair, some of this will depend on what interest rate you can qualify for, how much you can put down up front, and how energy efficient the house you buy happens to be. Still, it’s a nice guide to use when thinking about your monthly outlay for your mortgage.
3. Be prepared to look at a lot of houses.
I thought I had it all figured out; I was going to look at 3 or 4 houses at the most and find the perfect one in the bunch. I turned out to be kidding myself.
We ended up looking at 14 or 15 houses over the course of two years. Each house had at least one thing we didn’t like; some had way more. The problem is that it’s hard to tell a realtor what you actually want if you don’t have real experience in explaining what you want in a home. I hadn’t lived in a house in more than 15 years and my wife hadn’t lived in one in 8, and since neither of us had experience in owning a home we didn’t have a lot of information to give to any of our realtors.
That’s another thing; we ended up with 3 different realtors… and even then we ended up finding a home on our own by going online. They took us to funky styled homes; homes where people never cut the grass or took care of the landscape; homes with a lot of trash and garbage that would have taken a small fortune to get into shape. We saw a lot of small homes and a couple of very large homes that were outside of the budget we gave. And one of the realtors we only used once because… well, she got on my last nerve! lol
You won’t believe how tiring house hunting can be. You’ll be drained from the searching, even though when you first start out it feels exciting. You also won’t be seeing a house a day… be glad for that. Try to think about all the features you want in your new home: how big; how many bedrooms; finished basement or not; garage, two car or not; large or medium sized kitchen; one story or two; big, small or no yard; general preferred layout; neighborhood; price range. Even that might not be enough, but it’s a good start.
4. Other than price, your most important preference should be neighborhood.
No one else will tell you this, so let me be the first. I mentioned above how my wife and I looked at a bunch of houses, yet in the end we found a house online that we wanted to look at, which ended up being the one we bought.
Out of all the houses we looked at with the realtors, only 2 of them ended up being in neighborhoods we actually wanted to live in. When I look back on what we described to the realtors, the one thing we never talked about was where we wanted to live. We were thinking price and space and little else; that was a major mistake and a big time waster.
The thing is that I knew the neighborhood I wanted to live in because I actually “knew” the neighborhood. I didn’t want to live in a place I didn’t already know; that’s not something that bothers a lot of people but it was one of my peccadilloes. If you don’t know the neighborhood you need to research it pretty thoroughly before deciding to move there.
If you have kids you’re going to want to know what the schools are like. You might want to know how close you are to grocery stores or restaurants. You might want to live closer to people or be fairly secluded. Do you want to live on a dead end street or a cul-de-sac? Do you want to live in a full development or one where there’s lots of land where new houses will be built? Quiet or busy street? Parks, places to walk or bike, rivers or lakes, entertainment… it’s all about quality of life. True, you can drive anywhere if you have a car, but if you have a lot of what you want in your neighborhood you’re going to enjoy life more.
5. You’re going to need even more money after you move in.
This is the point I alluded to up in #1. It’s the one point that most people either never think about or underestimate how much they’re going to need or want to have.
I thought I was brilliant when I planned for an extra $15,000 to spend once we moved into our house. It turned out I wasn’t even close. We purchased a pre-existing house that seemed to have everything we needed and wanted. As we were moving in, we realized that not only were there things that had to be done but a lot of things we had to purchase.
Even though we had lived in a 3-bedroom apartment, we moved into a 5-bedroom house where it turned out we didn’t have enough stuff to put into all the rooms. We said we were going to go minimal; that didn’t happen. We also had to do a lot of maintenance things that the inspector didn’t either bring up fully or didn’t explain to us how much these things might cost (although it’s possible we didn’t understand what he was saying as new homeowners).
We needed a new roof. We had to paint every room in the house. We had to hire someone to clean out the basement because the previous owner had 3 cats (ugh; the smell…). We had to cut down some trees in both the front and back yard. We had to bring in an electrician because parts of the house weren’t wired properly. We had to have part of the front of the house redone because the foundation wasn’t as strong as it should have been. We had to buy things like lawn mowers and snowplows because we didn’t need either of these things while in the apartment. We had to buy some new rugs, and we needed to replace half of the windows. All of that was in the first 6 months of owning the home!
You might fare better if you have your house built from scratch, but recognize that will cost you more money than buying a pre-existing home. At least you’ll get to select all of your own appliances, and you’ll probably not need to spend a lot of money once you move in but your costs will be much higher across the board. Can you see why I said I’d have been happy if I’d stayed in an apartment?
6. Don’t get pushed into buying a house if you’re not feeling it.
Realtors are taught that many people will suffer from what’s known as “buyer’s remorse”, so they’ll work hard to encourage you to buy a house that you might have some hesitations on. Stick with your feelings because a home investment is not only costly, but it’s a long deal, the longest arrangement you’ll ever enter into other than marriage.
My wife and I looked at one house that was pretty nice… and small! All the fixtures were pretty new and the house didn’t look like it needed any work, but it was in a crowded neighborhood where all the houses were not only pretty close to each other but the backyards were pretty small and close to the houses in back of them. Also, the hallways were fairly narrow, and neither my wife or I were (or are) tiny people.
However, the realtor loved the house for us (and her commission) so we found ourselves hours from looking at this house sitting with her and the real estate lawyer she had in her office getting ready to sign papers to buy it. That is… until I looked at my wife and said I wasn’t sure I liked the house. She said the same thing back to me, and the shock on the face of our realtor and the lawyer almost made both of us laugh. It was after that experience that I went online and found the house we eventually purchased; what a horrible mistake we almost made because we almost didn’t stand up for what we wanted.
7. Make sure you send in your own inspector and make sure you understand what they’re telling you about a property.
Realtors will recommend inspectors for you, and I’m not saying that they’ve got a cozy relationship with each other, but you’ll do better finding your own. Once you do that, when they give you a report make sure you ask them what they mean by some of the things they say. This is something I touched upon in point #5.
Often they won’t give a red mark to something specific, but they’ll indicate something that’s less than being totally positive. Those types of things could end up costing you a lot of money later on, so it’s best to know up front what’s going on. Don’t even be afraid to ask questions and keep asking for more details; remember, buying a house can be a long term deal.
8. Even with disclosure laws, you might not hear about every problem a house has.
A homeowner might not tell you that the roof leaked during a major rain storm, especially if it doesn’t leak every time it rains. The same goes for flooding in the basement. They might not tell you about the nasty habits of their pets (remember the cats) or that the heating ducts might not be sealed properly. You might not know that the water heater or furnace are on their last legs. It’s possible that many of the appliances are ready to die (these are things your inspector won’t check).
If you ask a lot of questions and get false answers, which you’d know later on, if you document everything you’ve been told, you’ll have earned some rights of protection. Sometimes you might have leverage to either get some things repaired before you move in or you can dicker for a reduction on the cost of the house. If you don’t ask questions, it’s all on you.
9. Know your own credit report and credit score.
Even if you’ve been approved for a loan by a realtor, the mortgage interest rate you qualify for might not be up to snuff because of your credit rating. Although I think the concept of credit scores are worthless overall, lenders still use these things, and you might not get that wonderful 3.25% mortgage interest rate you’ve been hearing about if they’re worried about your credit viability.
If you know what your credit is like and it’s not top notch, you can always put more down on your home to get a better interest rate. The caveat is that if you’re credit rating isn’t all that good then you might not have the money to put down up front in the first place. This part takes you back to point #2; can you really afford a home?
10. Even if you’re having a house built, make sure you have everything agreed upon down on paper.
When my parents decided to have their house built back in 1986, they were dealing with a salesperson that ended up having a bad reputation later on. However, my parents weren’t the trusting sort, and it worked out in their benefit.
He promised my mother a lot of things and she made him write them all down. When the company learned about the kind of salesperson he was and fired him, they met with my parents and said they couldn’t get all the things he’d promised them. Mom produced the paper that he’d signed guaranteeing all those things she had asked for and she got them, much to their dismay. As Judge Judy used to say, if it isn’t written down it didn’t happen.
Considering buying a home needs to be taken seriously. Unless you’re extremely rich, don’t just dream for what you want. Put the early work in, then get ready for the real work. If you do it right, you won’t end up dealing with a lot of problems and issues later on.
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