thinking of buying a house for the first time

[MikeJones2001]

My wife and I are considering buying a house. We have a new born baby daughter and we want to buy a home. We have never bought a house before. My question is should I wait until we hit potentially hit a recession and housing prices drop or should I go ahead and buy one now ? We haven't gotten approved for a mortgage yet but both our credit scores are around 750 and our combined income is close to  $140 k .  We have no debt and I have around 100k in VTSAX that I can sell in order to fund a down payment.
 I am tempted to wait, but  the wife is pushing me to go ahead and get the mortgage approval started. What advice do you guys have for us.

[Dreamer40]

Personally, I would get the approval and start looking. You never know what the housing market will be like in the future. If you find something you like and the price seems reasonable you can go for it. If nothing seems like a good deal or fit, you can try again later with more information and experience. This also gives you a zero-pressure opportunity to test drive a particular realtor.

[reeshau]

You won't buy, or even bid on, the first house you see.  Start now with a mortgage pre-approval, so that you can see how the numbers look.  And be ready to look at houses, as we approach the Spring peak selling season.  As @Dreamer40 says, use the opportunity to get to know some realtors, and see if there is one you think you can work with.  You will also refine you wants and needs in a house, as you see more.

If you find what you want, get it.  You might pay more than you could have, but you also will be in your long-term place that much sooner: there is a value to that.  Your wife, a new mother, also seems to really want this.  There is value to that.

No matter what, you will learn about this significant life transaction.  Maybe you will get lucky, and the right circumstances will line up to pull the trigger.  If you are waiting for perfect to show up, it will go off market, or you will be outbid.

[Paper Chaser]

Real estate markets are highly local, and the US is a massive place with tons of different markets. It's expected that home prices will fall on average in the coming 18-24 months, but that's not likely to be consistent from market to market or price range to price range. Some markets are already seeing declines, while others are mostly flat. There are tons of homeowners with fresh 3% mortgages that don't have a lot of incentive to move right now, so supply remains tight in most places. But there is still a lot of new construction taking place/being completed which should slowly increase supply and potentially bring prices down. And you'll always have people that need to sell for other reasons (divorce, job change, death, etc).

I agree with others that starting the process cannot hurt. It's probably a pretty good time to start honestly. The Fed has another rate hike or two up it's sleeve, and they've shown no signs of a rate drop. They need to see housing affordability improve. This means you can take your time to look around, learn what you like/don't like in a house, and find a place that will allow you to live the life you want to live. I wouldn't worry too much about waiting for prices to bottom because you'll likely just lose the home you wanted. If there's a place that you like, that you plan to stay in long term and is affordable for you then pull the trigger and start to live the life you want. There's no reason to rush. Just get the ball rolling and start to look while the market continues to cool.

[Metalcat]

Buying a house is more of a lifestyle choice and difficult to time.

If you were to go back to all of the threads here that asked about buying houses during the peak, you would see that few people recommended waiting until the prices drop. It seems like a common sense thing to do, but as has been mentioned, it's very, very difficult to predict in local markets.

The biggest question you should have when it comes to anticipating a housing value dip is if there's risk of you ending up underwater on your home, and how you would handle that.

Plus once you start looking, you will likely find that it's a lot trickier to find a place that works for you than you expect. So if you are really set on owning, you are likely to jump when you find something that works for you.

Buying isn't a very fun experience unless you can afford substantially more than the price range you are looking in. But if you are looking at the mid to top end of your affordability range, it can be extremely stressful and you will find that the right house being available will dictate your timing more than anything else.

Also, I disagree with the statement that you won't buy or bid on the first house you see. I've seen this happen many times. I'm currently living in the first place I saw when I was house hunting in 2019, and our BFFs put in an offer on the first and only house they saw that same year (incidentally, their house is the only other place we looked at and we told them to buy it). My parents last year offered on the first house they saw.

It all depends on what you are looking for and what you are flexible about. If your deal breakers are the kind of thing that are obvious in listings, then you're going to look at fewer properties. If you are more vague on what you want, but more picky, you could end up seeing an endless stream of houses that just don't feel right to you.

It's not unheard of though to bid on the first place, so it's good to get your financing, etc lined up *before* you start looking. I like to have everything lined up before offering on a place. I have my inspector lined up, my insurance broker, lawyer, everything, because I know that I tend to find what I want and move fast on it.

I do, however, recommend that you *solidly* understand what it is that you both want from owning. Having a baby is no reason to own, so you want to drill down into exactly what her and your motivations are to want to do this massive thing.

I own 3 places, and I *only* own for the particular financial benefits that each place provides. If renting made more sense for me, I would happily be a renter for life.

Owning comes with A LOT of downsides, so you want to be extremely clear on what tangible benefits it actually gives *you specifically*, and what substantial trade offs you are making to get them.

You also want to make sure that you truly understand each other's perceptions of what those benefits and trade offs are. I can't tell you how many couples I've seen utterly miserable in the home buying process because they didn't truly understand each other's perspectives.

One of the biggest downsides of owning is that it makes you so much less nimble and flexible. You can't just easily pick up and move to accomodate a new job or just a new lifestyle. You become anchored to that home.

For some people, this isn't a significant trade off, they really want to hunker down and not move. For someone like me? That feels like a prison sentence. I offset this downside by only owning properties that are very easy to rent if I decide to live elsewhere.

I'm sharing this example just to show how personal/individual the benefits and trade offs of owning are. Life is a series of trade offs and you need to thoroughly understand each in order to execute the best trades.

Hammer those factors down solidly, and this whole process will be a lot more enjoyable for both of you.

[Laura33]

Repeat after me:  You cannot time the market.  You cannot time the market.  You cannot time the market.  Repeat as many times as necessary until it sinks in.

Trouble arises when you fixate on one particular thing and ignore the rest.  In theory, it sounds really smart to wait to buy until the housing market drops -- I mean, who wouldn't want to buy the same thing for a lot less, right?*  But you know what tends to go along with housing market recessions?  Job losses, meaning more people cannot afford a house, which could include you.  Stock market drops, which means your $100K downpayment could be $80K or $50K by the time you've decided the market is finally low enough to buy.  Interest rates are higher (because the point of hiking interest rates is to cool economic activity, after all), which means the increase in monthly payments could largely or more than offset the lower housing prices.  And then, of course, if the housing market is dropping, you also have to accurately forecast when it's at its bottom -- and then be willing to pull the trigger at the very point it looks like buying a home is a sure loser.

You cannot predict the future.  Yes, some people will luck into finding an underpriced home right at the perfect confluence of home prices, interest rates, and investment values.  But that won't be you.  Or anyone you know.  And there's really no sense targeting your plan around something that's highly unlikely to happen.  It's like planning your retirement around winning the lottery.

I also strongly encourage you to take @Mal(formed)cat's advice and think very hard about why, exactly, you want to buy a house.  Hint:  "because we've just had a kid," or "it seems like it's time/is the next step" isn't an answer.  What does a house offer that renting cannot?  If you want more space, a yard, etc., see what is on the rental market, and compare the going rental rate to the costs of buying/maintaining/improving a home.  IMO, a smart financial plan treats a house as a consumption item, not an investment; sure, you might get lucky and buy in at the beginning of a super-hot housing market, but then again, it's more likely you won't.  Better to buy a house because of the enjoyment it provides you vs. the perceived financial benefits, and therefore to analyze it like you would any other luxury purchase. 

In the interest of full disclosure, I have owned my own homes since I could afford to do so, for emotional reasons.  I totally get the pull -- that feeling like you really really want to own a home.  But I'm also older than you by a fair bit and can fairly state that almost all of my home purchases were rather stupid financial decisions.  I have lost money several times -- once on the order of $100K -- when those recessions you're waiting for triggered job losses that required us to sell and move just as the market dried up.  I have never been lucky enough to buy into a market that then takes off enough to outweigh the carrying costs and costs of buying/selling; we made out ok on some purchases because of relocation support, and we currently have a future-retirement condo that has shot up in value in the past couple of years, but that's after many more years of losing money every month on a rental.  Our current home is lovely and old and gracious, and also a huge money pit.  But, again, I'm a lot older than you; I'm already FI even with my money pit, so I can afford to make a less-than-optimal financial decision without any meaningful effect on my planned retirement date or lifestyle.  You've got a lot less leeway when you're earlier in the game, so do yourself a favor and look very hard at needs vs. wants and how any choice will affect your long-term financial plans.


*Answer:  Apparently, the vast majority of people who buy homes and stocks, because they do tend to pile in as prices rise because FOMO, and then sell as prices drop because FOMO.

[grantmeaname]

If your down payment is currently in the stock market, a recession will hurt both your down payment and your purchase price. If you want to buy soon, that should be in cash or cash equivalents, especially if the plan is to buy a market dip...

[AlanStache]

What everyone else said.

Try thinking of looking for a place to buy like looking for someone to marry.  You might be lucky and can filter down to a one really great person, want to marry them after meeting only them and live happily ever after.  Or you may need to go on lots of first dates.  Picking out wedding venues before a first date might be a bit much but you should have given some thought to what a potential married life would look like with your dream spouse. 

You and your partner should write down what you each want out of buying.  Personally "I dont want some dumb-a$$ landlord raising my rent, not fixing the toilet or having to change mailing addresses every few years" ranks high on my list of owning vs renting but you may be 100% different on that. 

[FINate]

First, ask yourself how long you intend to own the house. Less then ~10 years? Then keep renting. Not that you have to keep it for 10 years before selling, but you want the ability to ride out market fluctuations. If you have a reasonable plan to stay put for the long term then you needn't worry about timing the market.

Second, be patient. Seriously, people make dumb mistakes when they get in a hurry. This is a major life decision, and future success or failure depends in large part on making a good purchase. E.g. paying a fair price for a house for its condition and location. Get this wrong and it's very stressful and difficult to recover from. So take your time and make sure you know what houses are worth. This means spending a lot of time on Zillow (or whatever you prefer). At a glance you should have a sense for how properties should be priced. Overpriced properties that have sat on market for a long time may be an opportunity for a bellow asking offer. Under priced properties may be a good deal, but they may also have serious problems.

In my opinion, it's better (within reason) to prioritize location over the specific house. I'd much rather live in a less than ideal house in a great neighborhood  than a nicer house in a bad location.

Specific things I look for in a neighborhood:
* Walkability: sidewalks, parks/stores/eats within walking distance, low traffic streets.
* Low Crime: little/no graffiti, windows without bars, low crime stats, people walking and kids playing in the neighborhood.
* Civic pride: clean streets, clean parks, no abandoned vehicles, well kept homes/yards
* Good schools: don't need to be the best, just functional with decent finances and not the worst ratings.
* Quiet: respectful neighbors, not under flight path, not near active rail line.

Once I find neighborhoods that I like, I start looking at specific homes. Some of the things I consider:
* Not on a major street/arterial.
* No mold or water intrusion issues.
* Good bones: no major foundation, roof, siding, or structural issues, relatively up to day electrical/mechanical (no knob-and-tube or aluminium wiring, no lead pipes, etc.)
* Functional layout: it's easy to change the interior style of a house, but difficult/expensive to change the layout. I don't want to go through bedrooms to access other rooms.
* Good drainage on the property: No pooling or directing of water toward structures, no major issues with retaining walls.

No home is perfect and most have at least some issues. I just make sure it's reflected in the price.

[snic]

Definitely take your time. Presumably your wife wants a house because you need the space with a new baby. But the baby isn't going to take up all that much space for the next year or more, so you have plenty of time. Eventually you'll want to have a real estate agent to represent you. The great thing about this is that you're not paying them, at least not directly - the seller's agent splits their commission with your agent. Shop around for an agent and don't sign on with the first one who seems ok. One way to find them is to go to lots of open houses and chat with the agent showing the house. Get to know them and see what they say, but don't agree to let them show you any houses just yet (if they do, they're representing you). You want someone who will ethically represent your interests and not push you into buying something, AND someone who will work very hard to coordinate all the details that go into a home purchase, AND someone who is experienced and knows the process in your market backwards and forwards, AND someone who's been around for a long time in your area so they know the market well and will advise you of both the positives and negatives of any given house. Definitely ask for references and call them up.

When you finally get serious about a house, there's a LOT that needs to happen - loan application and approvals, but also inspections. Your agent will have recommendations for all sorts of professionals, from loan companies to home inspectors etc. But keep in mind that your agent's interest is in making a sale and they may not provide you with the best options (e.g., mortgage companies that work quickly rather than give you the best rate; inspectors who have a history of inspections that result in a sale rather than a warning to buyers about a serious problem). So it pays to take your time and shop around for these as well.

[MikeJones2001]

Thank you to everyone who responded to my question ! We called the mortgage broker today to get the approval process started.

[Metalcat]

Thank you to everyone who responded to my question ! We called the mortgage broker today to get the approval process started.

Also line up an inspector, a lawyer, and an insurance broker.

Your realtor may have people they can recommend, but as has been said, they are motivated to make a sale. I've gone with the inspector my realtor suggested though when I really trust them. One has become a really good friend of mine.

But the more you have all of these ducks clearly in a row, the more everyone involved will treat you with respect and take you more seriously as a buyer. I've personally found it makes a huge difference for me, but I'm also a woman who looks like a college student, so being taken seriously can be a challenge.

But coming into every purchase interaction well prepared has made a huge difference for me.

[reeshau]

But coming into every purchase interaction well prepared has made a huge difference for me.

Wholeheartedly agree, Malcat.

When we buy a house, we forewarn the title and real estate agents that we will read the paperwork we are signing.  The smart ones agree to send us copies ahead of time.  We still skim the final versions.  While there has never been anything scummy or underhanded, I am amazed at the number of errors we find: misspelling of our name, title insurance for a different property (!!).  With all the attention and money around this, people think signing is a formality, never mind there could be issues down the line.

And those that have the gall to complain about it?  They can go find someone else to do business with.  In the end, it's my money, and I have the most at stake.

[AlanStache]

Despite all the lawyers and professionals, think of buying a place like buying a 20$ lawn mower at a garage sale.  Dont think of the seller as having any integrity and once you hand over the cash it is your problem with about as much recourse.

[Jon Bon]

Despite all the lawyers and professionals, think of buying a place like buying a 20$ lawn mower at a garage sale.  Dont think of the seller as having any integrity and once you hand over the cash it is your problem with about as much recourse.

This is pretty good advice!

And yeah for the most part none of those "Paid Professionals" give a shit about you, they just want the churn of moving assets around so take everything that is said by them with a healthy dose of skepticism.

I would also be skeptical of "Oh it just needs......" Like if the water is off to a bathroom, its off for a reason. It does not "Just need the water turned back on" Because if it does, it would be on and working correctly. Anything that is not working as expected is in fact broken until the seller can demonstrate that it is not broken!

[Radagast]

Based on my own anecdotes, I don't think it looks like a good time to buy. The cost of buying relative to renting the same house (or as close as possible) is pretty absurd if you get a loan. At least in my area, the monthly rental fee is the same as the monthly interest only out to two years, then factor in maintenance, taxes, opportunity cost etc. and renting looks pretty good. You can't know what the market will do in the future, but you can know if it is better to buy versus rent right now. Your market may vary. No harm in looking, but run the numbers in a rent versus buy calculator, or better yet make your own.

[reeshau]

Rent vs.  buy is not so lopsided in my area.  But, I also think rent vs. buy is misleading at the moment.  While the Fed is expected to "keep rates high" (rates are relatively, but not historically, high) for a time, they are expected to come back down late this year, or in 2024.  If you get a loan under current conditions, you can refinance at that time.  So, making a decision as if you will pay the current rate for 30 years if a false one, as long as you expect to be in the house for quite some time.  And, conversely, if you wait until rates go down to start looking to buy, like the crowd, then what do you think will happen to home values at that time?  Since we have a long-term supply issue for new housing, I expect it will be off to the races again, if you can even get a bid accepted.

You can also blunt the effect immediately, if you do believe rates will go lower, with an ARM instead of a 15- or 30-year fixed mortgage.  ARMs have a bad rep after the 2008 financial crisis, but it's times like these that they were made for.

[Radagast]

Rent vs.  buy is not so lopsided in my area.  But, I also think rent vs. buy is misleading at the moment.  While the Fed is expected to "keep rates high" (rates are relatively, but not historically, high) for a time, they are expected to come back down late this year, or in 2024.  If you get a loan under current conditions, you can refinance at that time.  So, making a decision as if you will pay the current rate for 30 years if a false one, as long as you expect to be in the house for quite some time.  And, conversely, if you wait until rates go down to start looking to buy, like the crowd, then what do you think will happen to home values at that time?  Since we have a long-term supply issue for new housing, I expect it will be off to the races again, if you can even get a bid accepted.

You can also blunt the effect immediately, if you do believe rates will go lower, with an ARM instead of a 15- or 30-year fixed mortgage.  ARMs have a bad rep after the 2008 financial crisis, but it's times like these that they were made for.

Couple counter points: with the current monthly rent/payment difference, in the future there must be some combination of lower rates, lower house prices, or higher rent prices, and most likely that means it is better to rent for now. Of course, location and specifics matter.

Mortgages are bonds, and with an inverted yield curve there is no APR advantage to an ARM.

[YttriumNitrate]

My wife and I are considering buying a house. ... I am tempted to wait, but  the wife is pushing me to go ahead and get the mortgage approval started. What advice do you guys have for us.

I would say don't buy a house because a bit under a year ago you stated:

We plan on living in our current city for at least another 5 years in order to have easy access to child care. But I would love to move to another city in 5 or so years. Any advice would be welcomed

[Finances_With_Purpose]

A few pieces of advice:

• As usual, @Laura33 has beaten to the most obvious point: you'll be selling your stock in a down market, and prices may drop further as rates/recession continue.  Why not just save for another year or two versus selling stock in a down market?
• I bought with a kid coming.  There's no need.  Kids take very, very little room the first year.  They barely even move.  You have plenty of time on that front.  Use this time to prep for that, because those are both huge issues/changes, and doing them both at once is a recipe for stress and trouble.  Your wife will either not want the stress (before baby comes) or you'll both need more sleep (after baby comes), neither of which lend themselves to home buying, moving, and repairs.
• Houses can be emotional purchases; people have deep-seated emotions and they overspend easily to satisfy those emotions.  Instead, think of it like buying that $20 mower at a yard sale.  There are others out there, and you'll own all the problems with this one once it's yours, so take your time, research, study houses for a while first, and have a solid plan.
• Find your own inspector for the reasons stated above.  Bonus points if you find one that investors use to scrutinize deals.  I got my first one from an RE investor friend - and that was a great experience.
• Houses are just goods, like cars, or used TVs: there are plenty more out there, even ones as cute as that one.  ALWAYS be willing to walk away.  It's an economic transaction only, and don't get sucked in to all of the emotional ploys.  You're buying a widget.  (On that note, we went under contract on one and walked away - and the best deal we ever made was walking away from that place.)
• Consider the time and other commitments involved.  Owning is like commuting: it takes a lot more time to do the upkeep on many homes.  Consider that on the front end.  Right now, your landlord likely mows, fixes things, and so on.  You'll now either (1) spend hours doing those same things (and keeping the tools) or (2) hire it out at a significant cost.  I'm not a handyman, though I'm getting better, but that was a real pain.
• Consider maintenance cost.  It can quickly and easily outpace your mortgage payments themselves.  Ask @Laura33 about that; I'm sure she can tell stories, as can I.  We definitely spent more on maintenance in the first couple of years than we did on our mortgage payments.  The downsides can be very large if you make a poor choice on that front.  Ours we knew about going in, but many, many friends ignored it and ended up underwater or in trouble sooner than they expected.
• Most importantly, you're starting a process where nobody makes any money unless you spend hundreds of thousands.  The process itself pushes you to buy - and buy more.  Set a hard line budget before you go see a single house.  Figure out what you can reasonably allocate to housing and stick to it.  This is my #1 piece of advice.

[topshot]

I would say don't buy a house because a bit under a year ago you stated:

We plan on living in our current city for at least another 5 years in order to have easy access to child care. But I would love to move to another city in 5 or so years. Any advice would be welcomed

Good point. I'd suggest reading this and all his linked articles.