How do I buy a house -

Factual Questions
1

I’ve got a job offer, and maybe a down payment. The place where I’d be working is a small town without much rental property. I’ve never bought a house before, but it may be the only way to get a reasonable roof over our heads. We’ve committed to two years in this town, if that helps, and I’m in Canada, if that helps. We’re also going to have very limited time to house hunt - on the order of a day or two.

I’ve been reading [thread=570545] Lynn Bodoni’s thread [/thread], but I’ve got more fundamental questions. I literally have almost no idea how to buy a house. Here’s what I think I know.

  1. Go to bank. Ask for loan to buy house. Show them job offer. Smile winningly.

  2. Go to realtor / look on MLS website / look on Craigslist, Kijiji / drive streets to look for potential houses

  3. Go look at houses. Find one we like

  4. Get home inspector in - according to the other thread, also get plumbers and painters to have a look.

  5. Bargain - by how much?

  6. Buy.
    This seems like a woefully weak plan. Help me figure out how to approach this. Thanks

2

If you seriously think you may be leaving in two years, don’t buy a house unless you are OK with losing a ton of money.

3

That is quite the weak plan. I am not sure about Canada but even applying for a mortgage in the U.S. takes a significant amount of time and documentation to process before you can even really get started. That doesn’t include looking at properties and closing which usually takes at least 60 - 90 days after you start.

Under those conditions, you are better off renting one for at least a year. There has to be something to rent there even if it isn’t perfect. If you only stay for 2 years in the town, you are going to lose money overall because of the transaction costs. A couple of days isn’t enough time find a decent house, have it inspected, make an offer assuming it passes the inspection, have the offer accepted, and arrange for a closing months in the future.

The first years of a new mortgage are almost all interest so you aren’t really investing in anything which is similar to renting except it involves many other expenses and responsibility so it is a financial loser.

4

As a first time home buyer, definitely hire a realtor. I’m not familiar with the Canadian real estate market, but if it’s like the US, the seller typically pays the sales commission that is split between buyer’s and seller’s realtor. So you aren’t really out any additional money if you have a realtor, unless you end up buying a FSBO (For sale by owner) which you may have to negotiate your realtor’s commission separately from the deal.

Try and get pre-approved for a mortage loan before you start shopping for a house. Typically you will be pre-approved for way more house than you should be buying, which is a good thing. If you don’t have a banking relationship, your realtor will likely know a few banks or mortgage companies they can recommend.

Before you start your search, be very candid with your realtor about your price range (they will typically show you houses that are above your price range, because of the potential to negotiate down into your price range). Also, be very candid about your likes and dislikes, so that they can try and pick houses for you that you are more likely to make an offer. Since you only will have a day or two for a house hunting trip, do as much preplanning with your realtor as possible. This way they can schedule a slate of houses for you to see while you are in town for your day or two. Three of the five houses, I have owned were purchased in similar house hunting trips of a couple of days.

When you visit houses, again be vary candid about what you like and don’t like with the realtor. You’re not going to hurt their feelings. The need to know the attributes you value, to help you find your home.

Once you settle on one that you may want to make an offer upon, get your realtor to run comps (comparisons) of houses that recently sold in the neighborhood the house you are considering is. This way you can estimate a value of the house and decide on a your offer and a negotiating strategy. The offer / counteroffer process may take a day or two also, before you can come to an agreed price. The seller knowing that you already have pre-approved credit will help this process. Typically the offer you make is accompanied with earnest money ($1,000 +). Ask your realtor, what is customary for your market. This is to let the seller, know that you are serious about your offer.

After you have a contract, then you would schedule the inspections. If the inspector finds anything significant that wasn’t obvious to the casual eye when you looked at the house, you can renegotiate the price. If you and the seller can’t come to new terms, the contract can be cancelled and you can get your earnest money back. Otherwise, if there are no significant items discovered in the inspection, your bank and realtor will typically take care of everything else, like appraisals and title searches (needed for the financing). The closing will be scheduled and in a month or so, you will be in your new home. Be prepared to put down at least 10% of the purchase price as a down payment.

5

“Maybe” a down payment? Unless you have a large down payment saved up, I don’t think a job offer is enough collateral to convince a bank to give you a loan. I also agree that a couple days isn’t nearly enough time to find a house, and that if you might sell in two years, you’ll lose a lot of money.

I know you said there’s a shortage of rental properties where you’re going. I’d still try renting for awhile. That’ll give you time to check out the area (and the new job), and when you’ve decided to stay, then think about buying.

6

Y’all are pointing out all the things I was worried about. Unfortunately, so far as I can tell, rental is not looking like a realistic option, although I will be searching that out as well.

7

Here are a few thoughts from someone who went through something very similar a few years ago:

Firstly, about 5 years is roughly the timespan for breaking even on a home, assuming the prices don’t fluctuate much. If you’re there for less than 5 years, you’re probably better off financially renting.
Secondly, it is possible to find a house with a day or two of looking. My wife and I did. We flew out for a three-day weekend and saw something like 17 or 18 houses. The very last one on the list is where we now live.
Thirdly, you’re going to need a realtor. If possible, try to get some recommendations from people who live there. If that’s not possible, you’ll just have to pick one. If you’re lucky, you’ll get one who’s genuinely interested in helping you. We always felt like our realtor was very much looking out for herself - she was interested in getting a house sold, regardless of how well it worked for us. So just go in with your eyes open.
Fourthly, once you’ve picked a house, any decent realtor will guide you through the rest of the process. They’re used to it. Ours recommended a local bank to finance the mortgage, arranged the inspection, and all that stuff, while we were thousands of miles away. Not ideal, but it can be done.

8

Do you both need to move at once? Can you rent a room for a month or two to get the lay of the land?

9

Thoughts, in addition to what everyone is saying:

a) normally, you’re not going to close on a house in short order, so your job start date may not coincide very well with the earliest time you can move in.

b) you aren’t going to get a loan without a down payment. They are more stringent in Canada on down payments, too, than they are in the US.

c) you don’t get any kind of mortgage interest deduction in Canada, so the economics of buying a house may not work for you.

d) 2 years isn’t typically long enough to recover, by property appreciation, the purchase and sales expenses.

e) your #s 4,5,6 are off. You find a house you like, you start negotiating on price, you sign the offer sheet (which legally binds you to purchase the property*), if they agree to your price/have already agreed to it, they sign the offer sheet.

*at that point, typically a standard real estate offer sheet provides that the completion of the contract for sale is contingent on securing financing (which you probably do already, in step one, otherwise they won’t treat you as a serious buyer) and also contingent on the buyer being satisfied with the condition of the house. so after you’ve put the offer in, they let you onto the property to inspect, then you re-negotiate after that to lower the price based on the inspection. you’re not going to get free run of a house unless you’ve already “semi-agreed” to buy it and have settled on an initial price.

this is all YMMV, and may be different in Canada.

Frankly, I would seriously reconsider buying, given your self-imposed time pressures (which is never good for buying expensive stuff), your projected amount of time you’re staying there, your lack of confidence that you want to stay, etc., but if you’re hell-bent on buying I’d call a bank (in slight modification to your #1, you don’t get a loan off the bat, but you do get pre-approval and a sense of how much the bank will loan to you based on your credit, assets, and repayment ability - that’s usually the first step) and then call a RE lawyer and have him work with you.

I’d watch out for a RE buyer’s agent unless you know what you’re doing with them or there’s someone very highly recommended - a buyer’s interests and a buyer’s agent’s interests aren’t exactly aligned - her commission depends on you paying more for the property, and very few that I know of work on a fee basis.

However, your employer may offer as a perk a relocation agent, which is basically a contracted-and-paid-for-by-the-employer real estate agent who doesn’t depend on the sales commission for her $.

10

Two factors, namely only having a day to search for property and wanting to sell in two years, means that you are extremely likely that you will take a huge financial hit.

Also, when you say you have a day to house hunt, how much time do you have for all the other work: price negotiations, inspections, etc. Buying a house can take weeks, and you will be limited by the pace of the seller even if you wanted to rush through it.

How impossible is renting? Is there literally not a single rental location available? To echo what others have said, buying in your situation sounds like a giant financial mistake.

11
  1. No. Absolutely not. Once you have a job and you’ve been with it long enough that you are certain you are going to keep it (1 year at least) then save up for a down payment. It’s also a really good idea to save up an extra $5k or so, because houses are great for throwing you a really big surprise expense at you every once in a while.

Once you’ve got your down payment and your extra money for repairs, then figure out what 1/3rd of your take home pay is and search for a house with a mortgage that will not exceed that. Realtors will gladly sell you a house with a higher mortgage payment since it gets them a higher commission and they aren’t the ones who will have struggle each month to make the mortgage payment.

  1. I don’t know how it works in Canada, but you can go right to an agent first here. They will “pre-qualify” you for what you can afford. They will aim as high as they think they can get for their commission. They don’t want to sell you a house that you can’t afford because the bank will turn it down and then they get nothing for their commission, so they don’t want to give you an unrealistic number. On the other hand, they have no problem selling you a house that stretches your finances so much that you can’t even afford to go out for pizza on the weekend. You might want to scale back what they say you can afford a bit.

  2. Yep. Go look at houses. Find one you like. Go look at a LOT of houses. 2 days is silly. We spent 2 months looking at homes before we bought one.

  3. I wouldn’t bother with a painter, but definitely have the furnace looked at by someone who knows a lot about furnaces, and have the roof also looked at by an expert. You want to have a rough idea of how much life these have in them. You want a termite inspector to go through the house, but also bear in mind that termite inspectors sometimes can’t see the little bastards hiding. Your termite inspector may give you a clean bill of health and then you get termites a couple of years later (hence keeping that $5k in the bank just in case - that’s a couple grand to take care of pests right there).

Have the plumbing and electrical inspected.

Keep in mind that with most of these inspections there can be hidden problems that they won’t be able to find unless they rip your house apart. You just do the best you can.

  1. Bargaining depends a lot on your area. If homes are selling slow you might be able to come in a bit low on the offer and have a chance at it. On the other hand, in some areas if you don’t bid higher than the list then someone else will snatch the house away from you.

  2. Buy, but only if you plan on being there a while. You are going to lose $5k to $10k in closing costs. You’ll lose a bit more money when you try to sell the house. If the home doesn’t appreciate by that much in 2 years, you’ll end up with a huge financial loss. Housing markets also sometimes slow down. You may want to move in 2 years but may find that your house takes 6 to 12 months (or more) to sell. Right now, the housing market in my area is very slow. You either lose a bunch of money by selling cheap or your house may sit on the market for a very long time. 5 years after I bought my house it was worth more than double what I paid for it. In the past 5 years though it hasn’t appreciated at all. If I had done a buy and sell in 2 years during that first 5 year period I would have come out ahead. If I had done the same thing during that last 5 year period I would have lost a ton of money.

My advice is rent right now. Save up your money. In 2 years, if you are still there, and plan on staying for another 10 years at least, then buy a house.

12

typically realtors will send you to pre-qualify with their in-house financing department or someone with whom they have a “special” relationship with. Consequently, pre-qualifying via the realtor may not yield you the best rates.
(not to say don’t do it, but rather you can also go elsewhere or at least you should know what the rates are in your area)

13

By the way, from the time I put an offer in on our house to the time we moved in was about 3 months. You don’t just go look, buy a house, and move in the next weekend.

14

If you’re moving because of a job offer your best bet is to not let the two days of househunting drive your schedule. Plan to leave your family in your current home for a few weeks while you’re looking, don’t let the required move date for YOU force you all into a major financial decision you’ll regret.

15

FWIW I ran across this website a few weeks ago: How To Buy a House

16

Oh, one other point since you may not be thinking about it in these terms…

I don’t know where you’re coming from (i.e. if this is a first job or a step up) but if you can’t take the job without buying a house, and buying a house will cost you money, then maybe taking the job isn’t a right answer.

17

To add to the generally good advice - don’t be afraid to change your realtor.

Personal anecdote, twenty-five years ago, and in the US not Canada, bur our first realtor apparently thought that being first-time home buyers meant he could unload one of the dogs he had hanging around, that didn’t match any of the things we said were important and were asking 20-30K more than we were prepared to go. After he tried to talk us out of making a lower offer for a house that needed complete re-landscaping, new carpets, and had no appliances included, we decided to go with another realtor.

FWIW. YMMV.

Regards,
Shodan

18

Can the folks offering you the job give you any resources? You say it’s a small town: maybe the person hiring you knows someone at church whose aunt wants to rent out a garage apt. or something along those lines.

How small a town is it that they’re hiring out-of-towners but don’t have one apartment building anywhere?

19

If you don’t have 20% for a down payment, you will have to pay an additional couple of thousand in mortgage insurance here in Canada (look up CMHC). It sounds like a bad thing, but it’s one of the reasons our real estate market didn’t follow the US down the shitter.

I’m not going to say don’t buy, but buying and selling at the other end is a lot more arduous than finding a rental and moving in, then giving notice and moving out. How it has gone for us:

  • Get some money in the bank.

  • Start paperwork at bank to get pre-approved for a mortgage. Pre-approval can lock interest rates in for a period of time, which is important if rates are set to go up again.

  • Once pre-approved, find a real estate agent. Give agent a list of what you’re looking for.

  • Look at houses. Look at more houses. Look at even more houses. Don’t worry too much about finding a perfect house - your first house is the one that helps you figure out what you DON’T like.

  • Put in an offer on a house once you find a good one. Offers are typically lower than the asking price, but it varies with circumstances - if a house has been on the market for two years and the price has dropped twice, the seller is motivated and your offer can be much lower than asking. If the house has been on an extremely hot market for a day, you’ll probably offer very close to asking. Your agent can give you some advice here, but the final decision is yours, since it’s your money.

  • Offer is accepted or declined. If accepted, you sign an offer to purchase contract, which is basically not binding on the buyer at all. In that offer you will put conditions; typical conditions are “dependent on buyer’s fiinancing” and “house passes home inspection.” Passing home inspection can be more specific, like “repairs not greater than 5% of purchase price” or something.

  • If offer is declined with a counter-offer (this often happens), you may accept the counter-offer price or make another counter-offer with another price of your own. This also often happens. If the counter-offer comes back at $100 below asking, your sellers are not motivated and you may as well pay basically their asking. If the counter comes back halfway between your offer and asking, they want to deal, so you come back with half way between your offer and their counter. Hopefully they’ll accept at this point, and you can get on with things. They will expect a cheque as a deposit of good faith, that you’re not just screwing around. The deposit is also supposed to prevent you from reneging on your offer to purchase, but it doesn’t actually work that way. Your deposit becomes part of the purchase price later on.

  • Offers all accepted, time to work on conditions and get your real estate lawyer involved. I would not buy or sell property without a real estate lawyer. The paperwork goes from your agent to your lawyer, and it’s time for you to book an inspection with an accredited home inspection company. Expect to pay $200 or so for this.

  • Inspect the home, remove that condition if the house passes. ETA: I recommend going with the inspector to see the house. He will point things out to you that are good to know.

  • Get bank to approve mortgage based on agreed-on price. This is often an area of pitfalls; you will of course have documented every exchange with the bank up to this point so they can’t jerk you around too much. The mortgage approval shouldn’t take more than a week or two. The bank, your real estate agent, and your lawyer will be in touch with each other to move paperwork around. You will be expected to come in and sign things regularly.

  • Lawyer has purchase contract and mortgage - you and your wife come in to sign about 50 documents.

  • Agreed-on closing date happens, you pay a huge chunk of money to your lawyer (they operate as the go-between for finances for both parties - I don’t think we do escrow here as the US Americans know it), she releases the keys to your real estate agent. You meet your agent and do a walk-through of the house to make sure that the former owners didn’t take the stairs and kitchen with them when they moved out, and then you own a house. Simple! :slight_smile:

20

You might look around for some kind of homebuyers’ class. When I was ready to buy a house six years ago, I found an announcement about it in a local paper. It was put on by a mortgage broker and a real estate agent for free. In two hours, they covered not only all of the questions in your OP, but discussed a lot of local information, like general price trends for the greater Seattle area. That kind of advice was perfect because it was timely and very local.

It was put on for free, of course, because the two people were hoping for our business. We wound up getting our mortgage through that broker, but there was not any obligation and the class was invaluable either way.