Buying a House

I watch a lot of first time homebuyers shows on HGTV, so the advice I have learned from that is to be practical (paint color - not a problem, mold - problem) and be ready to make a decision.

I agree that having your ducks in a row regarding financing is really important.  You need to understand what you can afford, etc.

I have bought two houses and the one thing extra I would do now is make a list of must haves and also want-to-haves.  Bring the list along so you stay focused.    I might go so far as checking them off or grading  a house.  It's easy to forget the details later and you don't want to forgot to find what is important.

You can't move a house, so if you don't like the neighborhood, commute, parking space, DON"T buy it.    We sold our last house because we didn't think that through and now I am much happier in a house that isn't as "nice" but has a great neighborhood, etc.  I know I can fix up the house in my own time.

Mainly, be practical.  This is a HUGE HUGE HUGE amount of money for most people. 

Get a house inspection no matter what.

If your realtor isn't working for you (finding houses that meet your criteria, offering knowledge or contacts about technical questions, etc) get a new realtor.  They should do more than just turn the key at houses you find on a master list.

Have fun and good luck!

Buy a house as a place to live and expect to live there a long, long, time.  Don't buy it as an "investment" or expecting to move up/on in 3 years or even 5 years.  If you factor in all of the transaction costs, it takes 3-5 years of nominal (6-8%/year) appreciation to cover the costs of buying and moving.  Mortgage application, title search, title insurance, closing costs, inspections, utility hookups, a month or two of overlap with two living spaces, changing address info and drivers license, and the moving van are all part of the move-in process.  Real estate commission, transfer taxes, freshening/improving to sell, etc. are all part of the selling expense (along with another set of purchasing expenses). 

Bikergirl had some great points.  I have some friends who bought a house in a nearby community and 6 months later realized they really spent most of their time in town and moved back within 2 years.  Luckily, they were able to easily sell their house.  In addition to that, consider the neighbors.  Would you want to plot a young family in the middle of a block full of retired people? 

How handy are you with doing home-owner type things around the house.  This might influence whether you look at older homes or a low-maintenance home.  Even new or newer homes have a lot of work to make them your own. 

What is your reason against buying as an investment? My hope was to live there, while renting out the spare bedrooms (no family) and then whenever I decide to move out or "upgrade" (Think 5+ years down the road) keep the property as a rental.

I am very handy around the house so I will likely be looking for one that is discounted and needs a bit of TLC; not much scares me except for mold, that's a no-go.

Make sure you know the difference between what you qualify for and what you can afford.  I would even take the 'what you think you can afford' number and reduce it a bit since there's always unexpected costs to owning a home, even one in good condition. If you really want to stretch or go for one at the top of your range, make sure to really think it through - if you're spending all of your income on mortgage payments are you ok with going out to eat less often (or never)? Not being able to afford furniture to fill up the new place? How would you handle it if you needed to suddenly replace the hot water heater, etc.  Both houses we've bought have been a bit below what we thought we could afford but afterwards we realized we'd overestimated what our top end should've been.  I actually kind of enjoyed the process though.  Good luck!  And make sure to drink some electrolytes during closing so your hand doesn't cramp up.

So very much this.

Also consider if you don't already, having an "emergency" house fund, separate from everyday bills and planned upgrades. Things WILL go wrong. Probably at the worst possible time. My air conditioner died 2 days before I was heading across the country for an IM. Days before another IM trip, a huge tree split and fell on top of my house. Less than ideal timing (maybe I should quit doing IMs? )

A fund set aside for these types of unexpected things will save your butt. 

Just to give you an idea of how bad this can be, I'm getting ready to sell my house and buy a new one.  The wife and I sat down and really worked through our expenses to figure out what we could afford.  Then we went to the bank and they pre-approved us for nearly double that.  It's ridiculous how much they're willing to give us.

Something to keep in mind, a lot of people will take their houses off the market before the holidays and re-list in March (give or take).  So get everything ready financially now, and you'll be good to go just as the houses are hitting the market.  A site like Zillow will show you if the house has been previously listed and did not sell.  If you see that it's been re-listed two or three times, you got to figure either it's really over-priced or there's something very wrong with the house that is scaring people off.  On the other hand, you can also assume that the seller is probably starting to get desperate and maybe willing to negotiate.

Buying your first home is usually a pretty concentrated investment and you're getting something with high transaction costs, high carrying costs, and limited liquidity.  That's why I say don't buy it as an "investment." 

I have no problems buying an income producing property as an "investment."  Check with zoning boards as well as your bank about the legality of renting rooms.  You might also check with your lawyer and accountant. How will you afford the next home without selling this home?  I don't know how the bank will treat your rental income when you go to buy the next home, but converting from owner occupied to non-owner occupied might violate the terms of your mortgage as well as your homeowner's insurance.  There may also be restrictions on the number of non-owner-occupied properties in an area (common with condo's and townhomes).  How likely are any of these to change in the next 5 years? 

Look online, get your realtor to print out the fact sheets for you and take notes on the back of each one as you look at them.  Take a camera and take lots of pictures.  Save your pay stubs.  This is my 4th home and THIS mortgage, as opposed to the other 3, they had a FIT over me giving them a paystub......which I always throw away. Get pre-approved.  It doesn't really mean anything but realtors like it.  Make sure your accountant has your taxes filed appropriately.  Ask you realtor about lenders and shop around.  A big bank or even YOUR bank (as I sadly found out) My not do a lot of mortgages and not have a clue what they are doing.  Keep on top of your mortgage person.  Mine was an idiot.  Also sign up for an identity protection service like life lock.  ALL and I mean ALL of your finances are about to be bounced here there and everywhere.  Its under $100 a year and well worth the security and peace of mind

Agree with this. We were qualified for much more than I was willing to spend and it always ends up being more than they tell you. Our stupid realtor kept telling me just the mortgage price, he would never include taxes, insurance, HOA fees, etc. And when they did talk taxes and insurance they underestimated. Don't trust anyone else' numbers, sit down and figure them out for yourself.

Also please, please, please, if your house is subject to an HOA and CCR's get a copy before you buy the place. I had to beg borrow and steal to get a copy of mine before I bought. I finally called the realtor and told him I was going to walk on the deal if I didn't have them by end of day. Then I sat and read them front to back. Now I am the President of the HOA Board and it is astounding how many people don't read the rules before buying a house. Then they get all peeved off when they get in trouble for breaking the rules that they refused to read.  

Be prepared to walk away from the deal. Any deal. If you are too emotionally invested in a house you are more likely to make bad decisions; you'll pay too much or overlook potential problems because you think it's "the one."

Is the 20% down thing still advised - I mean I know if you have the cash it's a good idea to get out of the PMI situation, but for those of use on single incomes who have fairly tight finances? I was actually advised NOT to put any money down when I bought in 2006 (it had zero effect on my interest rate). My finance guy said I would be MUCH better off saving my cash for unexpected repairs and such - if you dump all of your cash into the mortgage it's GONE. Not like putting it into an investment you can draw from when you need it... I was really glad I kept my cash.

Just my experience.

I think the main difference between when you and I bought and now is that PMI is now for the life of the loan rather than the first 5 years (from what I have heard). I bought in 2010, didn't have the 20% down but wanted to take advantage of the $8k tax break so we moved up our buying timeline. So I do pay PMI but only for the first 5 years and it is $80 or so a month. Someone "in the know" told me the rate is closer to $150 a month and is now for the life of the loan rather than 5 years. Could be wrong but it can definitely change the equation a bit. 

All that said, there is definitely an argument for investing savings rather than dumping it all into the house as long as the number crunching works out. I'll tell you one thing, it is rather depressing when you don't put much down and you see the breakdown of interest vs. principal. A payment of over $1,500 makes a principal payment of a little over $200. Ouch!

So it turns out that putting down $10,000 more, gets you about $40/month off of your mortgage. For a cash poor 24 year old with a steady (presumably rising in the future) income, that's a crappy bet. Going to go the route of minimum down, keep the money to put into the house, especially with tenants that will be important.  And they definitely WILL GIVE YOU TOO MUCH MONEY, for nothing.  The amount they are willing to loan me is insane. I now understand how so many people ended up being foreclosed upon during the downturn

I thought PMI automatically went away once you've paid off 20% of the appraisal value of your home.