Author Topic: Want to buy a home... Where do I start?  (Read 4128 times)

thepokercab

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Want to buy a home... Where do I start?
« on: March 16, 2014, 03:15:02 PM »
Hi- 

So my wife and I are finally at a point where we we'd like to purchase our first home.  We currently like the neighborhood we're in now, so would like to buy locally. Right now we're in the process of trying to save up for a 20% down payment. (for a $200-250K home), and I think we should be there in the next 9 months or so. 

Anyway- i'm a complete N00B in this area and would love some advice/suggestions on how I should start this process. This community seems to be chalk full of people who are experienced in real estate, so I thought I would see if folks had any advice for someone looking to buy their first home.  Are there resources/books folks would suggest I reference?  Should I be trying to find a realtor now even though I don't have my down payment amount together yet?  Do you actually need a realtor? Pitfalls to avoid? 

Thanks for any tips or suggestions!   

Gimesalot

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Re: Want to buy a home... Where do I start?
« Reply #1 on: March 16, 2014, 03:36:36 PM »
I am about to close on our first house in 1 week and this is how we did it:

Talked to several friends about their real estate agents.  Found an amazing one that focuses on first time home buyers.  We went through approximating payments, taxes, insurance, etc. 

Second, research first time home buyer incentives.  Found an amazing program called Home Possible.  I believe it is Freddy Mac.  You only need 5% down payment for single family homes.  It has a super low rate, and no income cap, if you buy in "under served" areas.  Using this, we found a lender that was able to offer this product. 

Remember, FHA only requires a 3.5% down payment.  I suggest that you speak with a real estate agent before you save more than 10%, so that you understand exactly how much you should save given the incentives that are out there.

Weedy Acres

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Re: Want to buy a home... Where do I start?
« Reply #2 on: March 16, 2014, 04:36:06 PM »
Be very careful about the "low down payment" options.  They often come with higher rates and/or PMI.  Be conservative in your approach financially so you don't get in over your heads.

Find a good realtor to take you around, but be careful about accepting/believing everything they say.  They have an incentive to close the deal, and might push you to overlook things or dismiss concerns. 

Don't "settle" or get in a rush to buy a house.  Make sure you find one that's well suited for you now and in the foreseeable future.  Houses have high transaction costs to get into and out of, so you don't want to be house-hopping in a few years because you have a couple kids and bought a 2-bedroom house.

thepokercab

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Re: Want to buy a home... Where do I start?
« Reply #3 on: March 16, 2014, 05:17:54 PM »
@gimesalot- thanks for the advice on the home buyer incentives.  I hadn't really thought of that.. 

@weedy acres- i am definitely leery of the "low down payment" options.  I've seen a lot of case study's where folks are paying PMI so i'd like to avoid that if at all possible. 

Sounds like the first step might be to start shopping around for a realtor.   

plantingourpennies

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Re: Want to buy a home... Where do I start?
« Reply #4 on: March 16, 2014, 06:32:33 PM »
Spend some time nailing down what your needs/wants are in terms of your home purchase.  There will inevitably be no way to have every desire for both you and your spouse in your new home, so talking about that before hand will prevent you guys from wasting you and your realtor's time.  Some things...

- location - which school district/town.  Are there tiny people in the near future?
- proximity to work, errands/groceries
- proximity to parks/recreation/fun stuff
- type of neighborhood: deed restricted vs HOA vs no restrictions

These kinds of things are going to affect your day to day life way more than granite countertops, so nail them down with your spouse so you both go into it with the same expectations.
 




bikebum

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Re: Want to buy a home... Where do I start?
« Reply #5 on: March 16, 2014, 06:58:07 PM »
I bought my house about 15 months ago and I was a noob. My experience was you can't get inside a house unless a realtor unlocks the door for you. Maybe you can call and ask the selling realtor to let you in; I don't know because I had my own realtor once I was ready to start looking. Since you need to work with a realtor, you will probably want your own because the selling realtor's interests will not be aligned with yours.

If you won't be ready for 9 months, I think now is early to start looking. It depends on the market, but when I was looking houses were sold pretty quick. Although it's good to watch the sales and get a feel for the market.

My best advice is don't rush it. I felt a little rushed since the market was going up pretty fast. I love my house, but I think some of that was luck. I put a couple offers in that didn't get accepted, and now I am glad I didn't end up living there.

the fixer

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Re: Want to buy a home... Where do I start?
« Reply #6 on: March 16, 2014, 07:24:14 PM »
I'm in the middle of trying to buy my first house. I am extremely analytical, and it really helps me feel more confident about the process if I understand and do most of it. I research houses I might want to buy. I look for ways to possibly find deals (researching leads on distressed homeowners that might be willing to sell fast for a discount). I pore through Zillow, public records online, eventually public records that are only available offline.

When I find a house I want, the first thing I do is go visit it (by myself, no agent involved). I scope out the neighborhood: who else is there, what are they doing, what's nearby, parked cars on the street, amount of vehicle traffic. I talk to the neighbors and get intelligence: what's this neighborhood like? Who is the seller, and why are they selling? That sort of thing. Since location is so important, I'd say that this alone gives me at least 60% of the information I need to know about the property. I even get clues regarding the house's condition just by looking at its exterior: is the chimney falling apart? How does the roof look? Any other signs of disrepair? Any issues with landscaping, grading, or retaining walls?

Now if I still want the property, I determine how much the property is worth to me. This can be based on many things. For me, it's mostly based on how much rent I can get out of it, but if you want to live in the house yourself it could be based on how much you're paying for housing now, sale prices of similar homes nearby, etc. Next, I contact a real estate agent. Whether to use a buyer's agent or contact the seller's agent directly is a question I don't really have the experience to answer here, so I'll leave that out. But the important thing is that before you've talked to any pro who wants to convince you to buy, you already have learned a ton about it and have a rough idea of how much you'd be willing to pay.

Calling a real estate agent to take you to a bunch of places they pick out just seems like the wrong way to buy houses. They could, for instance, arrange for you to visit it only at a certain time of the day/week to avoid you seeing/hearing things they don't want you to. Trust, but verify.

This whole process can take a lot of time, and if houses are selling fast then you may lose valuable time checking out a house before you've ever contacted an agent. If this happens, don't sweat it; it's a sign the market is overvalued and you should not buy. If you don't have time to property vet a house before it sells, that means the buyer didn't either and you're better off not being that guy.

Gimesalot

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Re: Want to buy a home... Where do I start?
« Reply #7 on: March 17, 2014, 08:01:47 AM »
Yes, the FHA loans have a high PMI and you can not remove the PMI for the life of the loan. 

In our case, we did Home Possible.  We bought a 3-plex for $244k, with $12K in closing costs.  The down payment was 10%, and PMI is approximately $50 a month, until we have 20% equity.

Take your time deciding what you want, then talk to a real estate agent.  Our agent was on her hands and knees showing us faulty plumbing under houses.  She constantly spotted termite issues, code violations, and substandard structural repairs.  She always had comps in the areas in terms of prices and rents.  She was great, and she was also our third agent.  The selling agent was terrible.  He never communicated with the current tenants, lied about the rental income, and lied about the condition of the house several times.  Watch out for people like him.

No Name Guy

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Re: Want to buy a home... Where do I start?
« Reply #8 on: March 17, 2014, 01:19:08 PM »
9 months is way too soon to talk to a RE Agent.

First question:  Do you plan to stay in this house for at least 10 years?  If yes, the congrats - you passed the first test on if you SHOULD buy.  If no, then wait to buy until you can answer yes.  The transaction cost of buying / selling is high - don't take it on unless you plan to be there for the long haul.

As said earlier, you need to determine the location (school district, etc).

You also need to determine what size of house you'll need. 

It sounds like you have your price point (e.g. 200-250k).  What you need to find out is what do you get for that price point in terms of location, size, quality, etc.

Also - find out what taxes are like in the areas you're interested in for 200-250k houses. 

Ditto homeowners insurance.  Talk to your agent for your auto and get a rough idea of what it'll set you back per year.

Now, with the above (e.g. you know you want 20% down on a 200-250k, know what the range of taxes, fees, etc are, and insurance) you can figure out what the range of your monthly costs for paying the mortgage plus escrow account (for the taxes and insurance) will be.  The "payment" function in Excel will tell you what the principal and interest payment is for a given starting amount, rate, and term.  Add on monthly for taxes and insurance.

Decide if you can stand a HOA community or not.  (In my case, definitely not).  If you decide a HOA is OK for you, find out what the expenses are in the various neighborhoods are - you don't need exact numbers....get an idea of what it MIGHT cost before you start looking.  Factor this into your monthly cost calculation.

You don't mention a state - look into the actual mechanics of the transaction.  Here in Washington, Escrow Agents are "LPO's", or Limited Practice Officers.  They're authorized to draw up the deeds for a transaction.  In many states you'll need an attorney for this (at inflated attorney prices).  In many states, you'll need an attorney to do the Title Search (or abstract as it's some times known).....here in Washington, it's via a Title Company.  Find out what that will cost you.

Start informally looking around the 'hoods you're interested in to get a feel for what's out there at what price.  Use Redfin, Zillow or other similar local sites.  Drive by places, go to open houses and be the lookie-loo.  You'll get bombarded for contact info at open houses - open an e-mail account for your home buying only.  Once you're done, you can abandon it - that way your "real" account isn't permanently spammed by RE Agents.

On pitfalls:  Do not, under any circumstances, get into a bidding war.  Also, do not, under any circumstances, waive inspection.  Do not, under any circumstances, waive stuff that comes up on inspection - and reinspect after mandated repairs / insist on certain quality of goods used for repair, else a cheapskate seller will do a minimum cost repair with marginal material.

On things to look for:  Find a place that has good "bones" - solid, well maintained structure that is free from rot, mechanical systems in good condition, good roof, siding, windows, etc.  Remember that with a good set of bones, you can make your dream house, even if what you end up buying isn't aesthetically perfect.  An ugly or simply outdated, but solid home, can often be had for a good price - just make sure it's only cosmetic and you can turn ugly into your vision of beautiful at a reasonable price.  You'll pay top dollar for pretty and perfect.

Eric

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thepokercab

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Re: Want to buy a home... Where do I start?
« Reply #10 on: March 17, 2014, 02:59:42 PM »
Thanks @ no name guy for all the feedback! You've given me some things to think about.  I've put some of my answers in red below: 

9 months is way too soon to talk to a RE Agent.

So when would it be appropriate to do so? 

First question:  Do you plan to stay in this house for at least 10 years?  If yes, the congrats - you passed the first test on if you SHOULD buy.  If no, then wait to buy until you can answer yes.  The transaction cost of buying / selling is high - don't take it on unless you plan to be there for the long haul.

Yes- the idea is that we would stay in this house for at least the next 10 years.  Our oldest child starts kindergarten next year, so we're looking to put down some roots so to speak.

As said earlier, you need to determine the location (school district, etc).

We currently really like our location, so would like to buy around here (here being in Phoenix, AZ).  The school district is one of the best in the state, and with our oldest starting school pretty soon this is obviously important to us.

You also need to determine what size of house you'll need. 

So, right now we live in a 3-bedroom apartment, which is about 1,200 square feet.  We're thinking at least three bedrooms, two baths, with a square footage no smaller than what we have now, but we probably don't need anything bigger than 1,700 square feet.  We try to live pretty efficiently, and we don't want to fall into the trap of buying too much house. 

It sounds like you have your price point (e.g. 200-250k).  What you need to find out is what do you get for that price point in terms of location, size, quality, etc.

So far based on my research, this price points seems to get close to what we're looking for in terms of # of bedrooms and square footage as well as location.  We don't own a car right now, and drive very rarely so we want to be in biking distance of everything- schools, libraries, parks, etc.. The 200-250K price point should achieve this for us (at least based on the listings i've looked at thus far)

Also - find out what taxes are like in the areas you're interested in for 200-250k houses. 

Ditto homeowners insurance.  Talk to your agent for your auto and get a rough idea of what it'll set you back per year.

Thanks- i hadn't really thought of taxes or insurance yet.  I need to research that more..


Now, with the above (e.g. you know you want 20% down on a 200-250k, know what the range of taxes, fees, etc are, and insurance) you can figure out what the range of your monthly costs for paying the mortgage plus escrow account (for the taxes and insurance) will be.  The "payment" function in Excel will tell you what the principal and interest payment is for a given starting amount, rate, and term.  Add on monthly for taxes and insurance.

dragoncar

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Re: Want to buy a home... Where do I start?
« Reply #11 on: March 17, 2014, 03:05:55 PM »
I'm in the middle of trying to buy my first house. I am extremely analytical, and it really helps me feel more confident about the process if I understand and do most of it. I research houses I might want to buy. I look for ways to possibly find deals (researching leads on distressed homeowners that might be willing to sell fast for a discount). I pore through Zillow, public records online, eventually public records that are only available offline.

When I find a house I want, the first thing I do is go visit it (by myself, no agent involved). I scope out the neighborhood: who else is there, what are they doing, what's nearby, parked cars on the street, amount of vehicle traffic. I talk to the neighbors and get intelligence: what's this neighborhood like? Who is the seller, and why are they selling? That sort of thing. Since location is so important, I'd say that this alone gives me at least 60% of the information I need to know about the property. I even get clues regarding the house's condition just by looking at its exterior: is the chimney falling apart? How does the roof look? Any other signs of disrepair? Any issues with landscaping, grading, or retaining walls?

Now if I still want the property, I determine how much the property is worth to me. This can be based on many things. For me, it's mostly based on how much rent I can get out of it, but if you want to live in the house yourself it could be based on how much you're paying for housing now, sale prices of similar homes nearby, etc. Next, I contact a real estate agent. Whether to use a buyer's agent or contact the seller's agent directly is a question I don't really have the experience to answer here, so I'll leave that out. But the important thing is that before you've talked to any pro who wants to convince you to buy, you already have learned a ton about it and have a rough idea of how much you'd be willing to pay.

Calling a real estate agent to take you to a bunch of places they pick out just seems like the wrong way to buy houses. They could, for instance, arrange for you to visit it only at a certain time of the day/week to avoid you seeing/hearing things they don't want you to. Trust, but verify.

This whole process can take a lot of time, and if houses are selling fast then you may lose valuable time checking out a house before you've ever contacted an agent. If this happens, don't sweat it; it's a sign the market is overvalued and you should not buy. If you don't have time to property vet a house before it sells, that means the buyer didn't either and you're better off not being that guy.

This seems like really good advice.  I'm in the SF bay area and right now the market is pretty hot.  I'm willing to wait a long time to find the right place at the right price (recognizing that many places are "right," and not to get attached to any particular right place) but I have a few concerns about financing:

1) If I get pre-approved now, and make a bid every month or so for the next year (just making this part up), does that screw up my credit?  I'd probably have to keep renewing my pre-approval, right?

2) I am currently doing a margin play (don't judge - it's as safe as can be expected*).  But the upshot is that I technically have a large amount of debt, and am servicing it at a low rate.  Does this kind of debt figure into my loan application, or do they just look at my equity in the account?  I plan to liquidate this account for the down payment.

edit: I'm in the really early stages -- just going to open houses to get a feel for the market, different neighborhoods, cities, housing styles (condo vs. SFH, multi-level vs. single, suburbs vs. city center, etc.). 

Sorry if I'm hijacking the thread.  It would be nice if we could get a home-buying megathread but I'll bow out if you want to keep this on-point for your particular needs.


*The tax-adjusted spread is around 0.13%, so it's costing me $130 to keep $100k in checking for a year.  It's worth it to me, but if the market tanks I can just deposit the money long before a margin call.
« Last Edit: March 17, 2014, 03:08:30 PM by dragoncar »

thepokercab

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Re: Want to buy a home... Where do I start?
« Reply #12 on: March 17, 2014, 03:28:33 PM »
I'm in the middle of trying to buy my first house. I am extremely analytical, and it really helps me feel more confident about the process if I understand and do most of it. I research houses I might want to buy. I look for ways to possibly find deals (researching leads on distressed homeowners that might be willing to sell fast for a discount). I pore through Zillow, public records online, eventually public records that are only available offline.

When I find a house I want, the first thing I do is go visit it (by myself, no agent involved). I scope out the neighborhood: who else is there, what are they doing, what's nearby, parked cars on the street, amount of vehicle traffic. I talk to the neighbors and get intelligence: what's this neighborhood like? Who is the seller, and why are they selling? That sort of thing. Since location is so important, I'd say that this alone gives me at least 60% of the information I need to know about the property. I even get clues regarding the house's condition just by looking at its exterior: is the chimney falling apart? How does the roof look? Any other signs of disrepair? Any issues with landscaping, grading, or retaining walls?

Now if I still want the property, I determine how much the property is worth to me. This can be based on many things. For me, it's mostly based on how much rent I can get out of it, but if you want to live in the house yourself it could be based on how much you're paying for housing now, sale prices of similar homes nearby, etc. Next, I contact a real estate agent. Whether to use a buyer's agent or contact the seller's agent directly is a question I don't really have the experience to answer here, so I'll leave that out. But the important thing is that before you've talked to any pro who wants to convince you to buy, you already have learned a ton about it and have a rough idea of how much you'd be willing to pay.

Calling a real estate agent to take you to a bunch of places they pick out just seems like the wrong way to buy houses. They could, for instance, arrange for you to visit it only at a certain time of the day/week to avoid you seeing/hearing things they don't want you to. Trust, but verify.

This whole process can take a lot of time, and if houses are selling fast then you may lose valuable time checking out a house before you've ever contacted an agent. If this happens, don't sweat it; it's a sign the market is overvalued and you should not buy. If you don't have time to property vet a house before it sells, that means the buyer didn't either and you're better off not being that guy.

This seems like really good advice.  I'm in the SF bay area and right now the market is pretty hot.  I'm willing to wait a long time to find the right place at the right price (recognizing that many places are "right," and not to get attached to any particular right place) but I have a few concerns about financing:

1) If I get pre-approved now, and make a bid every month or so for the next year (just making this part up), does that screw up my credit?  I'd probably have to keep renewing my pre-approval, right?

2) I am currently doing a margin play (don't judge - it's as safe as can be expected*).  But the upshot is that I technically have a large amount of debt, and am servicing it at a low rate.  Does this kind of debt figure into my loan application, or do they just look at my equity in the account?  I plan to liquidate this account for the down payment.

edit: I'm in the really early stages -- just going to open houses to get a feel for the market, different neighborhoods, cities, housing styles (condo vs. SFH, multi-level vs. single, suburbs vs. city center, etc.). 

Sorry if I'm hijacking the thread.  It would be nice if we could get a home-buying megathread but I'll bow out if you want to keep this on-point for your particular needs.


*The tax-adjusted spread is around 0.13%, so it's costing me $130 to keep $100k in checking for a year.  It's worth it to me, but if the market tanks I can just deposit the money long before a margin call.

Nope- you're not hi-jacking.  Sounds like we're in similar spots right now!

I'm also curious about the pre-approval questions you had.  Somewhere I heard it only lasts for like 60 days or some timeframe like that, but i'm not sure. 

I also opened up a couple of credit cards a couple of months, basically to get the sweet bonus deals.  So i'm hoping that wouldn't affect my credit too much.   

No Name Guy

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Re: Want to buy a home... Where do I start?
« Reply #13 on: March 17, 2014, 08:33:41 PM »
thepokercab:  As to when.....hard to say, but certainly not now IMO.  Here's what I'm thinking:  You don't have the money in hand for the down.  How fast to houses in your price sell in Phoenix?  If the time on market for the types of houses you'll be looking at is multiple months, I'd wait to get an agent until you're within a month or two of having your 20% down of your 200-250k place.  If houses go within days of hitting the market, it's kind of a waste of time to get the agent until you're close to being able to pull the trigger on a place since you won't be able to act on any listings that come up.  (How's that for an answer without an answer?  LOL.)

Use the meantime to ask your friends, coworkers, family about their agent choices and how they fared with them.  Do your research on this list of names of possible agents. 

Link from Eric is a great piece from The Man Himself.