I have been contemplating buying a house, but it’s a huge step for me so I am obviously a little worried by the whole deal. Everyone keeps telling me that now is a good time to buy, etc. I had initially planned to wait a year or so to save a little more money, but I am beginning to think that now could be the right time. Here are my stats:
Last FICO ranges from 738 to 745 so credit is good
I have only been on my job (and in industry) a year come January
credit history is about 3 years old
Could have around 10% to put down within the next month (all my savings)
Current rent + utilities is about 20% of my gross paycheck each month
I have heard other people’s mortgage + insurance payment for more expensive than I am interested in houses and if I did that it would total about 33% of my gross each month.
In addition to normal bills I have had about 1k to 1.5k to save each month so the increase in mortgage shouldn’t be that big of a deal
I have no intention of leaving the area anytime soon
I am 23 so I don’t know if that would be help against me or not
It seems like this could really be a great time to buy
I really feel like I am throwing my rent away each month with nothing in return. Even if I sold in a few years after buying and made $0 in profit you are essentially still getting a place to live for free so you are still better off than renting. Home prices would have to significantly decrease before you would still be behind renting. That’s my logic anyway. Is that correct?
There are so many new houses going up in my area recently because there has been a huge influx of people. I am kind of scared to wait around too long and have prices increase if I wait a year or so.
I just don’t really know who to go to or the process or anything. Frankly no one in my family has ever actually purchased a house. I talked with a coworker and they recommended a real estate company. I am guessing I could find a buyer’s agent (recommended by my House buying for Dummies book) there? Do they walk me through the process of finding inspectors, getting preapproved, etc?
What was your first home buying experience like and do you have any advice?
I apologize this was so hastily put together and fragmented. I really need to leave for work now so I will come back to this this evening. Thanks all!
I work in real estate, and you seem a good candidate to me.
Real estate prices are low now, and you should be able to get a good deal. When you pay rent, you have a bunch of rent receipts. When you buy a house, you have a physical piece of property.
Look at the houses in your area at www.realtor.com and see what is out there. Once you find a real estate agent, they will refer you to mortgage agents, home inspectors, attorneys, etc. They are supposed to refer you to at least three of each.
All real estate agents have to cooperate with all other agents, so any one agent can show you any property on the market. Ask friends for referrals. The correct procedure (in my office anyway) is to meet at the office the first time and go over the prospective buyer’s information and then show them about five properties, getting a feel of what they are looking for. Do not trust an agent who is pressuring you into making a deal or who only shows their listings. They are looking out for their commission, not what is best for you.
You will be living in this house every day for years. Make sure it is what you want and can afford.
You sound as if you are in a good position to buy a house, considering your age. My only advice is that, if you do decide to buy, you don’t over-buy. Get something that you might be comfortable living in for 5 to 10 years, with a view to upgrading then; and leave yourself a bit of financial cushion in case something goes wrong (e.g., serious illness or losing your job).
The most likely downside is that house prices will go down, but that shouldn’t be a big issue for you if you are buying for the medium to long term. The big upside is that interest rates are still very low: try to get a loan which locks in the low interest rate for the whole term of the loan, rather than one which starts really cheap, then goes up in a few years.
(And the first house that I bought cost AUD 6,000, and I bought it with two of my friends to live in together. That was a really long time ago: that house is probably worth around 50 times as much now).
Keep in mind, OP, that many people who don’t work in real estate don’t think that Real Estate prices are low right now at all.
They think they’re very high, falling, and will continue to fall, possibly for many years. I recently read that the last time that prices declined as much as they did from October 06 to Octboer 07, they took 4 years to get back to their peak (that decline nationally was about 4.5%).
Despite the recent downturn, prices are still high compared to their historic norms. They’re still high compared to median salaries.
Also keep in mind that when you buy a house, you’re paying interest and taxes. That’s something that the people who cry “stop throwing your money away on rent” tend to leave out.
Finally, even if prices don’t continue to fall over the next year, IN MY OPINION, the risk of them out-pacing what your current down-payment is able to earn is virtually nil. You’re not going to lose out by sitting on the sidelines.
People in 2004 were worried they’re going to be priced out forever. That’s not a concern right now. If you’re not absolutely dying to get a house (like you just got a wife and kids, and need something stable), there’s never been a better time to wait.
Pricing trends depend largely on your area. In western PA where I am there was no real “bubble” to speak of, so we haven’t seen as much of the decline that some areas are experiencing. (which isn’t to say we’re totally unaffected, just less so than other places) A real estate professional can give you more info on your local area.
I think it’s smart for the average not to think of a house as an investment or a money making venture, but as a place to live that makes economic sense.
There are also many hidden costs to home ownership that you may not consider. Taxes and interest have been mentioned, but there’s also the water heater that breaks on Monday morning. Or the sewage line that gets plugged with tree roots. Or the ice that makes an ice dam on your roof that causes a leak in your attic that makes the plaster fall off the second floor ceiling. There’s the lawn that you have to cut in the summer - do you own a lawnmower? The drive that needs shoveling in the winter. The gutters to clean in the fall. Home maintenance can be expensive. A house can be roots that ground you, or it can be an anchor around your neck.
I’m not trying to disuade you. I enjoy being a home owner (most of the time). I like being able to do what I want with my property. I enjoy home improvement projects. There’s a sense of satisfaction that I get from having a place that is mine ALL MINE!!! But I am married with two children and have no plans to ever move again if I can help it.
Consider why *you * want to buy a home, absent other people’s opinions. Talk to a realtor, crunch the numbers, look at a few places. If you decide that buying right now isn’t the right choice for you, you’ve lost nothing but a little time.
I dunno where you live, but we must be pretty close to the bottom of the housing price slump here south o’ Boston. When we were buying our condo, I swung by the developer’s office to pick up some paperwork, and there was a framed article on our condo development (which is new) from back in 2003 or 2004 when they were beginning to renovate the building and convert it to condos. In the article, the developer said he was projecting that the condos would sell for between $230K and $270K. Fast forward to the summer of 2007, when the condos go on sale. By the time we closed, in October, the condos were going for between $145K and $195K. So at least around here, now is the time to snap something up, under the theory that one should buy low.
You say that new homes are continuing to go up in your area. Keep in mind that builders are very reluctant to lower prices even if their homes are not selling. However, they are often willing to cut deals on other aspects of the sale. For instance, they might be willing to subsidize a lower mortgage rate for a qualified buyer, effectively lowering your cost. They do this because lowering the price affects all their houses, while these fringe deals do not. Your best deal, though, will likely be a motivated seller of an existing home.
When looking at houses, see whether you can get decent information on the monthly operating costs of each house. Taxes, maintenance, utility costs, heating, etc, etc. Especially heating. If you can get figures on how much fuel/electricity you would go through for each house, work estimated operating costs with the fuel or electricity double its present cost as well as its present cost.
If houses have home energy audit info available, that’s a big plus.
I know a fair number of people who have been bitten badly by not factoring the operating costs of their house. One couple had to move because they could not afford to heat their rental townhouse (it leaked like a sieve); they discovered that they went through a lot more electricity than they expected. They were lucky it was a rental and they could get out ‘easily’.
Also consider not buying a house there you need a car to get to the store for food. This troubled my friends when both their cars broke down, and they only live four kilometres out of town!
Realtor here. Annie-Xmas and I usually agree, and she gave good advice earlier in this thread.
I recommend you sign a Buyer Agent agreement with a Realtor. This does not obligate you to do anything, but you get someone batting for your side and representing your interests.
What does it cost you? Probably nothing. Provisions may vary state by state and contract by contract, but my company’s agency agreements provide that commissions are paid by the seller as usual as long as the property was offered thru the MLS (Multiple Listing Service). That is, the commission offered by the seller to the agent that brings the buyer to the table is the only commission anyone pays, and that won’t be you.
You may be obligated to pay a commision or part of a commission IF the property was not already listed. But this is where you win by having a Buyer Agent – your agent can solicit properties that are not now on the market or are being offered FSBO (For Sale By Owner). Without a BA, an agent cannot show you those properties, as he will get no commission. So with a BA, your choices are much greater.
Personally, I don’t think we’re anywhere near the bottom, Foreclosers are increasing, we’re only beginning to hit the very first wave of ARM (adjustable rate mortgage resets), and spooked lenders are getting stricter and requiring down payments which will mean fewer buyers and further drive housing prices down. People who would’ve used the quity in their homes to “move up” to a larger home are finding themselves trapped in homes worth less than they owe, whether due to 100% loans or excessive home equity loans. Home equity loans which pumped billions into the economy have dried up and many segments of the economy are feeling the hurt: builders, construction guys, furniture stores, major appliances retailers, etc. which means fewer people making enough money to buy houses. Plus, housing prices are still way out of whack with historical levels. chart
If you’re not in Florida, California, Nevada, Colorado, the east coast, the west coast, or a major city, there may not have been a huge housing run up. Look at rents compared to what it will cost you to buy. In many places, you can get a nice apartment for half of what a comparable condo would cost you. Include HOA fees, property taxes, and maintainence in your calculations. If buying is a lot more expensive, don’t buy. You would be better off taking the difference and investing it. People tend to drastically underestimate the expenses of owning property and the interest payments and overestimate the tax advantages and the amount of equity they’ll build.
Anyway, my advice to you is to research, research, research. It’s a huge financial decision and you need to be fully informed. Monitor your market and see how long it’s taking stuff to sell. There’s lot of good advice on the web but be leary of information that comes from realty sites. They want you to buy a house and their info may not be unbiased. (David Lereah, the former chief economist for the National Association of Realtors kept assuring the nation that prices would never, ever go down until, oops, they did. It’s the mission of NAR to be positive about home buying.) Prices are NOT going up anywhere. Take your time.
I think if you want to buy a house, this would be as good a time to start looking as any. Yeah, prices may go down in a year or 2, but if you wait till then you will have pissed away another year or 2 of rent, as well as missed out on living in your home for that time.
Take your time, and be a very hard bargainner. Consider foreclosures, or homes below market price because they need updating or cosmetic improvements.
If you want a house that is more likely to retain its value, consider the standard things such as location, good schools, good local transportation, not the biggest or smallest house on the block, etc.
But most importantly, don’t think so much of your home as a money-making investment. Yes, you do want it to hold its value and appreciate. But as opposed to so many other investments, you get a whole different quality of life from living in it.
If you buy a house with a fixed rate mortgage payments you can afford, and don’t expect to move or quit your job in the near future, you’re pretty much set. And if your income happens to increase - as is the case with most young people - the house just keeps getting cheaper and cheaper.
The value of your house doesn’t really matter until you sell it (or - shudder - want to borrow on it.)
The first thing you should do is stop thinking of renting as throwing money away. Sure, after all is said and done you don’t own the property but you are buying freedom as well as a place to live when you pay rent. With a small fee you can be out of an apartment immediately if you get transferred to London or fall in love with someone in LA (assuming of course you are not currently living in LA) or a rendering plant moves in next door to your place. Not to mention the fact that if your plumbing breaks in the middle of the night it isn’t your job to fix it nor to pay for the repairs. You don’t have to maintain your lawn, you don’t have to worry about people falling on the sidewalk outside your house and suing you, etc. Renting can be a pretty good deal.
That being said, should you truly want to buy a house I would recommend sitting down with people you know who are currently home owners and asking them what they like best about owning their own home and what they like least about it. Find out what suprised them the most about owning a home. Ask what they think of their mortgage companies. Do some research into the market in your area, talk to an advisor at your bank, etc. Know for certian that this is the right step for you before you commit yourself to a 30 year investment.
Minor point…don’t think of it as a 30 year committment. Rarely do 30 year mortgages last for 30 years without refinancing or early payoff. Computing monthly costs might be more important and appropriate in some circumstances.
First, ditto Sunspace, don’t forget that you will have sunk expenses like repairs, taxes and association fees.
Also, you specifically say house but I wonder if you’ve already ruled out condos? You will have monthly assessments, but you will have much less to worry about. I’d factor in how handy you are, and if you have friends/family in the area who can help out with basic home repairs – if no to both condos might be worth looking at.
Also, another idea would be to get a place with 2+ bedrooms and get roommates, at least for the first few years. Definitely don’t overspend but it can be a nice way to own but still live on a modest budget. I just bought a 1BR condo last May, I’m a grad student so I could only get approval for so big of a mortgage but if I could have afforded a 2BR I would have done this for sure.
I agree with this. There are too many housing market catch phrases in this thread as it is. The fact is that you can either rent a place to live, or you can rent the money to buy a place to live.
The OP said “Even if I sold in a few years after buying and made $0 in profit you are essentially still getting a place to live for free so you are still better off than renting.”, which doesn’t make sense at all. The vast majority of the money you pay in early mortgage payments is interest. So if you sell for a profit of 0, you just “threw away” all that interest. Also, remember taxes and the industry standard 6% commission. If you sell in a few years, better hope that your house went up by at least 6%, or you’ll end up negative on the whole transaction.
It’s tough to say for sure, since I don’t know where you are, but housing prices are still falling in much of the country, especially cities and the coasts. Personally, I think people buying right now are crazy… but that perception is filtered through my experiences living in southern California. I strongly suggest that you make a spreadsheet that compares the costs of buying and renting, over a few years. Make sure to include the tax advantages of buying, the interest payments, whatever investments you might make instead. What will it cost you if your house drops in value 5%? 10%? What kinds of gains do you need to have for buying to be a better deal than renting over 5 years? 10?
Thanks for the advice. I will definitely be looking for a buyer’s agent if I do indeed decide to go through with it. Where I live they actually have a website with a bunch of MLS listings (www.valleymls.com). I have been browsing all night and have seen several places all within my price range that I was really interested in taking a look at.
Thanks for the advice. That’s one of the things I was concerned with. I am single with no children and live alone. So I really don’t need a huge 3+ bedroom house. Unfortunately most of the houses I have seen have been this size though.
Thanks for the advice. The thing that kind of concerns me is that I hear all the time that it’s a good time to buy and likely to only get a little better (to buy) before it gets worse, but I just am not sure about my particular area. See, I don’t live on the coasts. I am in Huntsville, AL. So even though I am in the southeast and Alabama, Huntsville really is a different beast. Does anyone know, besides going to an actual real estate agent, how I can find out about the housing trends in my specific area as opposed to nationally?
Thanks for this. I realize there are tons of hidden costs. That’s something else that has me worried - I don’t have any major appliances. No washer, no dryer, refrigerator, stove, lawnmower, etc. Individually those may not be THAT much, but when combined it adds up to quite a bit.
This is the exact reason I would like to get some specific trends for my area. If there really hasn’t been a downward trend then there’s obviously no sense in waiting for prices to drop because they likely won’t significantly.
I guess that’s why my book recommended shopping around the end/beginning of the year. Many people, according to them, don’t plan on moving or buying so people are more likely to take a lower offer. I guess if I waited a year though it would be the same time of the year then though.
Thanks for that. I really hadn’t even thought about looking for that information.
Thanks! I will definitely be looking for a buyer’s agent.
I am going to come up with a big Excel sheet weighing the costs of renting versus buying.
Thanks! I will definitely be looking for a buyer’s agent and will keep the other advice in mind.
Thanks for this. I guess it’s easy to hear the positives of home ownership while mitigating the negatives. One of the things that really got me thinking about this was that I have people who recently moved in above me. No problems with the girl who lived above me for 11 months. Then these people move in and suddenly I am getting written up for noise violations (I certainly wasn’t excessively loud) and I now feel like I have to walk on egg shells while they apparently get to, or at least it sounds like, run around all night upstairs. When I also complained it was pretty much “There really isn’t anything we can do about that, but your music has to be turned down since you can help that.” I see their point, but I certainly wouldn’t have to deal with this at my own place. So, in summary, there are a lot of pros and cons.
Isn’t a condo similar to an apartment, but you own it instead of renting? Sharing walls and ceiling/floors with people is one of the main things I would like to get away from. About sharing a house, I really don’t know anyone who would be up for this sort of thing. Everyone I know around my age pretty much has a house and is committed. Thanks for the idea though!
Yeah, you are right. For whatever reason I didn’t include interest (obviously a huge part) when I wrote that. That would definitely be a big deal if I did decide to sell early. At this point I have no intention of leaving, but you just can’t predict the future. Point well taken. Thanks.
I can do all the calculations in that spreadsheet, but how do you calculate how much is going to just go to interest each month and how much to the principal? Suppose you borrow X at interest rate I for 30 years fixed. I can easily calculate the monthly payment, but how can you calculate how much money is being used up for the interest? I am sure someone has a calculator online, but I would kind of like to know for my spreadsheet and edification.
dgrdfd, some of the phrasing in your posts makes me wonder if you understand how a buyer’s agent works. A Realtor becomes a BA for you upon signing the proper documents; you don’t have to look for a different kind of office or agent-type person. I can be a BA for one client but not for another.
And it’s important that my advice pertains only to my state; your state may be different. But in Wisconsin, under the legal revisions made in July of this year, an agent no longer represents the seller unless that particular agent has a signed agreement with one. This is what is meant by “I have the listing”. In the typical case where you use the services of an agent, up until negotiations begin, that agent is a neutral party to both buyers and sellers (this represents an important legal change; formerly agents were all sub-agents of the seller by default).
No later than when negotiations begin, usually defined as sitting down to write up a purchase offer, the buyer must decide which side the agent will represent. If the buyer wants me to represent him, I hand him a Client disclosure form, otherwise, I will represent the seller (actually, the selling company) and I hand him a Customer disclosure form.
A client is someone I work for and represent; a customer is someone I am doing business with only.
While this sounds a lot like the relationship between attorney and client, it isn’t exactly the same. The buyer doesn’t have to have a rep on his side, and all agents must be fair in all dealings at all times. Obviously, “being fair” is highly subjective, but we try.
The one exception to the “which side does the agent represent” question is if the agent has both a buyer’s agency agreement with the buyer and is also the listing agent on the same property. In that case, the agent must remain neutral.
Musicat, thanks for explaining that. I thought I understood, but I really didn’t understand how it works. So, this is kind of the process that’s typically followed:
I decide I want to get a house. Since I am inexperienced it’s probably in my best interests to get an agent.
I can get recommendations from people and contact that person directly or just find a local real estate agency that I trust and contact them about getting an agent.
They will recommend one or I will set up a meeting with the one I contacted. They will likely ask me some questions to see exactly what I am looking for (price, location, etc).
Once I have an agent it’s both of our responsibilities (or mostly mine really) to look for houses
When I find one I am interested in looking at, I would call the agent and we would set up a time to look at it. They could also call me with possible houses to look at too.
Once I decide on one I would like to make an offer on, this is when I would sign the Client Disclosure form, and then, and only then, would he or she become my buyer’s agent. Heretofore, they were neutral.
Some negotiation may take place with offers being rejected or countered, etc. Finally one will be settled on (hopefully). Then it’s time for me to set up inspections, title insurance, etc. The buyer’s agent will typically have some kind of recommendations for me as to whom I should go to or am I responsible for finding all of this on my own?
After everything gets the okay, finally closing comes. This is like a big meeting where the official documents are signed completing the deal? Anything else going on here?
That’s the process as I understand it. Now at what point during all of this am I supposed to get preapproved?
Thanks for the help! The more I look into this the more I think I need to find some real estate message boards and hang around for the next 11 months or so and then look for a place. This is too big of a decision to not completely understand the process.
You get preapproved after you find the house you want to make an offer on. Your real estate agent should know the best mortgage broker to do this for you. They can also recommend attorneys and home inspectors.
Also, right before closing you have the “walk through” to make sure the sellers have left the property in good shape.
