CoffeeBear.net

How To Buy Your First Home

Posted by Mark | Filed under Life

In my younger days due to var­i­ous employ­ment sit­u­a­tions, I ended up mov­ing about once every five years. For­tu­nately, ever since I went to col­lege I’ve pretty much put a stop to that by liv­ing in the same town for twelve years. As men­tioned pre­vi­ously, my wife & I have bought our first house and have since moved in. While doing the actual move didn’t frighten me in the least, the buy­ing part of this was a new and rather ter­ri­fy­ing exhil­a­rat­ing emo­tion­ally drain­ing expe­ri­ence. And as I hate to be fly­ing blind in any sit­u­a­tion, I did what I could to pre­pare myself. Mostly, this con­sisted of hit­ting up the pub­lic library for every book writ­ten in the last 5–7 years talk­ing about home buy­ing, mort­gages, house inspec­tions and any­thing else I could think of to look at. Those books included: The Vir­gin Home­owner: The Essen­tial Guide to Own­ing, Main­tain­ing, and Sur­viv­ing Your HomeMort­gages For Dum­mies, 2nd Edi­tion, Kiplinger’s Home­ol­ogy: How to Be Sure the House You Buy Is the Home You Really Want, and House Inspec­tion: A Homebuyer’s Homeowner’s Guide: With a Spe­cial Sec­tion on Older or His­toric Homes.

I’ll talk more about those books later, but I’d like to dis­till the knowl­edge I got from read­ing them into a few handy bul­let points for future first time buy­ers to think about:

• Start plan­ing and SAVING as soon as pos­si­ble! Per­son­ally, I’d rec­om­mend start plan­ning out your pur­chase 5 — 10 years before you ever look at a house. Every “expert” in home buy­ing rec­om­mends hav­ing a min­i­mum down pay­ment of 20% of the pur­chase price of the house you want to buy. Hav­ing that much saved up gives you sev­eral advantages:
  • Banks/Lenders will be more likely to take you more seri­ously when you can demon­strate both finan­cial sta­bil­ity and prudence.
  • They will also be more likely to offer you a bet­ter loan when you have that much money up front.
  • The down­side to hav­ing the 20% is it could dis­qual­ify you from some of the first-time buyer pro­grams out there. Then again while I am a first time buyer and I do qual­ify for some of those pro­grams; it made more sense for me to NOT use them¹.
• If your credit his­tory is either short or bad, work to improve it. This means bor­row­ing money for things like a car or using credit cards and being extremely care­ful to pay back what you owe in a timely man­ner (e.g. no late pay­ments). The bet­ter your credit his­tory, the more likely a bank/lender will want to work with you and pos­si­bly offer you a bet­ter inter­est rate.
• If you are young and unde­cided on what you want to do for a living/career; con­sider real estate sales and/or being a lawyer spe­cial­iz­ing in real estate/property law. When you start going to the banks and real­tors, they are going to dump tons of paper­work loaded with legal­ize on you. If you have the skills to under­stand what they are talk­ing about; you’ll stand a much bet­ter chance of get­ting the house you want at a price (and a mort­gage pay­ment) you can live with.
• Fig­ure out exactly why you’re buy­ing a house:
  • Are you sim­ply sick of renting?
  • Do you want to have the addi­tion­ally pri­vacy of not directly shar­ing a wall with your neighbor(s)?
  • Are you look­ing for a long term, non-liquid investment?
• Fig­ure out how long you want to stay in the house:
  • 5 years?
  • 10?
  • 20?
  • More?
• Fig­ure out what kind of house you want:
  • A 3 story brick man­sion with a dozen acres of man­i­cured gardens?
  • A 2 bed­room, 1 bath condo?
  • A turn of the cen­tury bun­ga­low built and dec­o­rated in the Arts & Crafts style.²
  • A 1950’s ranch in need of major renovation?
  • An envi­ron­ment friendly under­ground bomb shelter?
• Fig­ure out how much you can afford to spend:
  • Based on your sav­ings, credit his­tory and monthly income deter­mine how much money you can afford to spend on a house. Note that the amount a bank will preap­prove a mort­gage for you is the max­i­mum amount they feel com­fort­able lend­ing to you and is not, I repeat NOT a fig­ure you want to be pay­ing off for the next 30 years.
  • When try­ing to deter­mine this amount, you should be think­ing about more than just the mort­gage. You should also include your util­ity bills (e..g elec­tric, nat­ural gas, water, etc..) and insur­ance costs.
• Start look­ing around the area you’d like to buy a house in, keep an eye on any “For Sale” signs and watch for open houses. You want to get an idea of how much the houses in the neigh­bor­hood are going for, so you can have some idea of what you might have to spend.
• Like­wise attend any open houses in the right area and get a good look at the houses.

Once you find a house that you are inter­ested in, take another walk through it (either at an open house or arrange a time with the real­tor. When you go through the house, you should poke in every closet. Also you should try every door, toi­let, faucet, lightswitch and any appli­ances that are included with the house. Look for any­thing that doesn’t work or that per­haps works but not eas­ily. These are things you can either ask the home­owner to fix in your bid on the house. Or you can ask them to knock some money off the price of the house so you can fix it yourself.

There’s undoubtably tons more advice I could put into this post, but it’s been sit­ting in my pub­lish­ing queue for far too long already. If any of my read­ers have addi­tional ques­tions, then can either post them here and I’ll try answer­ing them. Or then can read one of the books I linked to above.

¹ Due to the inter­est rates being offered by the banks being bet­ter than that offered by the pro­gram.
² Yes, yes, yes, yes please! :)