Just gave my two-month notice to my apartment complex and, much like the last two, they have demanded I sign various paperwork that basically boils down to me waiving all my legal rights on the basis of them promising not to scam me. I pay my rent on time, don’t bother the neighbors, yet am treated like I’m going to tear up the place and disappear into the night without paying my last months rent. Or something. I’m tired of this song-and-dance every year or two when moving from an apartment. For the $8,000/year that rent has been costing, seems like I could be building some equity.
So I’m thinking this house buying thing might not be too bad an idea. It would basically be for myself, my girlfriend, and our small dog. We have been thinking of the St. Johns, Michigan area. Looking on Yahoo Real Estate, I see quite a few 2 and 3 bedroom homes that could be considered ‘fixer uppers but livable’ in the $30k-$50k range, and quite a few nice places in the $60k+ range.
I have perfect credit (I think, never missed a payment on anything ever), make about $40k a year at a stable job, and am only in debt about $18k in student loans. Have about $7,000 in cash on hand.
So how does this work? I go to a local bank, see how big a loan they will give me, call a realtor, and have this realtor drive me around town to look at houses? Is this even possible to get done in two months? Aren’t there inspections and offers and counteroffers and all that other stuff? What’s that all about?
Do I borrow more than the cost of the home to cover start-up costs? (I assume there’s home-owner insurance, inspection costs, utility setup fees, and all kinds of hidden costs)
There’s just so much I feel like I don’t know. Help!
Start soon… just finding the right house takes a while, much less all the paperwork afterward.
And yes, start with preapproval from a bank. And know what you can afford, including your monthly mortgage payment, escrow payments for taxes and homeowners insurance, and PMI payments if they are applicable. Don’t let the bank tell you what you can afford.
Realtor here. Yes, you’ve got a handle on it. Yes, it might take two months AFTER you find the house you want, so get crackin’!
A good agent will advise you as to what to include in an offer and can give you estimates of the costs and suggest who pays. There are common costs and typical expectations of who pays, but there is more negotiation available than most people are aware of.
States vary, but if your state allows an agent to be a Buyer Agent, get that taken care of first (sign a Buyer Agency contract). In my state, that allows me to represent you, advise you, give you opinions as well as data (within limits), and try to get the best deal for you, not the Seller.
First, be aware that the mortgate is almost certain to be more than the $667 you are apparently paying for rent. If you buy a condo, you are paying not only mortgage (deductible, at least) but also HOA dues (not sure if these are deductible or not, I’ve never owned a condo), insurance, property taxes, utilities, and upkeep. If you buy a house, include everything except HOA dues, and double the upkeep. Don’t forget closing costs, which the buyer usually pays, and a home inspection, which the buyer pays for.
The main thing is to do the math and make sure you are not going to be house poor. If you figure out in advance how much money you can afford to pay per month for housing, including all of the above items, before you go to the bank, they can tell you how big a mortgage you can get for that. There are also mortgage calculators online that can tell you a lot, but they won’t include the extras.
I don’t know where you’re located, but if you don’t want to spend much more than you are spending now, my guess is you will be looking in the $100K range. I don’t know what you can get for that in your market.
Good luck. Don’t let anyone talk you into anything you can’t (or don’t want to) afford. Now is a pretty good time to be a buyer, but be careful about short sales and foreclosures, they can be risky.
Roddy
This would be my next question: Can you define these? Why are these riskier? I would think a foreclosure house would be a great idea, since the bank would want rid of it and might be selling it for less than it is worth. No idea what a short sale means.
Basically, an offer can be written so that anything and everything can be paid by either party. I’m not aware (in my state) of any exceptions.
Of course, negotiation is a 2-way street, so that doesn’t mean the Buyer has to request the Seller pay everything. I’ve seen offers that the Buyer paid everything just to make it a sweet deal and one that could not be refused.
Captain_C, the best offer is one that has:[ul][li]the best price, and [*]the fewest contingencies.[/ul] [/li]
Contingencies can be any condition that must be satisfied for the offer to continue to closing – inspections, tests financing, anything. That’s one reason pre-approval of financing is so important.
OTOH, contingencies can protect you from the unforseen and allow you to cancel or modify an offer if something comes to light that you cannot accept, like a broken foundation, unsafe water, zoning violation, fire hazards, an unclear title.
A short sale is one where the Seller owes more on a mortgage than a sale will provide. The problem is the mortgage holder must agree to accept what is offered or the sale won’t go through.
A property in foreclosure can be a good deal, but the bank will never fix anything, so you take it at your own risk and expense. If the price is really low, you may have to compete with other bidders, even at an auction. I advise you to not enter this kind of purchase unless you have experience, good legal and construction advice available, or if you have money to throw away.
Plan on spending about a fourth of your take home pay on your mortgage. Any more than that, and you are going to end up “house poor”, meaning you spend all of your money on your house and don’t have any money left over. I don’t know how it is these days with lenders getting a bit tighter, but it used to be they had no problem trying to sell you too big of a loan. When they gave me a number, I scaled it back quite a bit.
Also, your $7k is about what you are going to need for closing costs and all of that. You want to very quickly build up about $5k (or more) in emergency money. Houses are great for throwing you a really huge expense every once in a while. Some years you’ll have absolutely nothing, then some years WHAMMO. Between my cars, my kids, and my house, my worst year was $24k in unexpected expenses. That was a bit rough. $5k to $10k will usually cover even the worst of years though.
If you can afford a 10 or 15 year loan and still get a decent house in your area, you’ll do a lot better in the long run. Your mortgage will be higher though. Again, try to stick to the one-fourth rule, maybe one-third if you want to push it a bit. You don’t want to end up financially fragile though, because then one unexpected big expense can put you in a whole world of hurt. That’s how a lot of folks end up losing their homes. If you get laid off and can’t work for six months, will you have enough in the bank to keep paying your mortgage? If you are living month to month like a lot of folks do, the answer to that will be a fairly obvious NO.
I don’t think you need to borrow more than the loan. I’d expect closing costs on a $40k to $50k home to be around maybe $5k, which will leave you a bit left over for other things you’ll need. You definitely want to avoid owing more than the house is worth. If something happens and you need to sell it, you don’t want to end up still owing the bank when you are done.
Walk away from anything that has any signs at all of termites, even if they tell you the problem has already been taken care of.
Inspect the basement carefully for signs of water leaking. Look for leaks everywhere else around the house as well. Leaks cause a lot of damage in the long run.
In my opinion two months isn’t enough time, at least I know that I would like more than two months to decide where I potentially could be living for the next 30 years or so, much less getting all of the financing and other paper work in order.
The good news is you will have a lot of houses to choose from. It sounds like you can afford considerably more than a fixer upper though…ugh. Unless you’re really good with your hands or just want to have a long term project, just say no.
I’ve had two fixer uppers, the first was kind of fun to work on, the second not so much.
The house I’m living in now I bought new. There is no question in my mind that even though buying new is more expensive, you’ll come out ahead in the long run and save yourself massive amounts of grief.
If not new then try for a house less than ten years old, that is still new enough to probably not have to worry about major expenses like a new roof or the HVAC going out soon.
That’s what we have always done, too - what we were approved for and what we were comfortable paying were not the same thing.
There is the old saying about the most important thing about any house is location, and it is still absolutely true. Given enough time and money, you can change just about anything about a house except where it’s located (well, you can move a house, but almost no one ever does).
I agree with the one-fourth rule above for your mortgage payment.
In the real world I think 30-33% of your monthly income in rent is fine, but rent (as has been said) includes a lot of stuff that will not be included in your mortgage payment. A lot of people in this housing market are very surprised when they realize how much money they can save on a mortgage payment versus a monthly rent for equivalent quality housing. But remember, even after you remove the land lord’s profit he was probably paying to maintain the residence and possibly even hiring professionals to maintain it, or if he was big enough he had on staff maintenance men. Aside from the personal costs you will incur in fixing your own residence when it breaks, keep in mind many mortgage estimators don’t include the monthly fixed costs that will genuinely be part of the monthly payment itself (meaning they aren’t just random expenses): property taxes, homeowner’s insurance are almost always folded into a mortgage payment and often aren’t advertised by online calculators.
But the real reason you want to max out at 25% of income on a mortgage payment is the stuff you don’t have happen every month. An air conditioner breaking during a heatwave or your furnace crapping out in the middle of winter. Those repairs can run in the thousands, home owner’s will not generally cover such things from ordinary wear and tear, and you want money on hand to get that shit fixed right away because it’s 100 or -5 outside. So if you manage to end up spending less each month in mortgage you should probably take the difference and create a maintenance fund and get it up to a few K. Some people are very anti-cash, and I’m generally anti-cash myself because cash doesn’t work much for you, but sometimes even an account you can quickly liquidate isn’t ideal because if my AC breaks in a heat wave I want it fixed today not in 3 business days when all my account transfers are completed.
The other thing to keep in mind is owning a home can be a constant annoyance. Don’t feel like you need to own one just because you can. There are many benefits to renting, even aside from the financial there is a certain peace of mind in knowing you don’t really have to worry about the place you’re staying in. If it gets run down because the land lord doesn’t want to keep it up, you an just move. When stuff breaks, you don’t even have to worry about finding the cheapest person to fix it or anything like that (or if you do, you can switch land lords.)
Your house will have to be constantly maintained or it will get run down. When things break it isn’t just you that has to pay to fix them but it is you that has to schedule things between work and etc to get workers into your house, and then you have to be careful that you don’t get taken. When you are renting that is 100% on the land lord.
Financially there are various rent vs. buy calculators, and sometimes the difference is close enough that I think a lot of people would be happier if they hadn’t bought a house. However, in many situations it is undeniable with the mortgage tax credit and the fact that you are slowly building equity in your home have some true value. But don’t totally discount the “comfort” value.
When you buy a home you are almost always giving up some of the niceties of renting, the biggest one is the carefree lifestyle. For some people that is such a big concern they buy condos or they rent their entire lives. But for some people the economics of home ownership, the desire to have their “own place” or their desire to just not have to live under a land lord are important enough to definitely justify owning (I own my home)–but don’t assume you’re one of those people. Lots of people would be happier renting forever, and there’s nothing wrong with renting. You’re buying something in perpetuity, some people are always making a car payment because they want a new car every 4 years. That’s their choice and it isn’t right or wrong.
Maybe if they are from a corporation or they are fairly large. I’ve dealt with small time contractors immensely in my business and the vast majority of them take cash or checks and do not have any means of running a credit card. A few of them might have an office you could come into and pay by credit. It would depend though, if you’re dealing with a guy who works out of his house (and many, many small time repairmen and contractors do) then no they will probably not have credit card processing abilities.
“An office you could come into”? What is this, 1980? There are mobile apps these days that enable anyone to process credit cards and I’ve personally dealt with plenty of small-business people (including 1-man/woman operations) who use them. Of course, they may not be willing to pay the transaction fees, which is more what I was curious about. But if they say they “don’t have the means” that’s just rubbish.
I mean shit, if I can pay a babysitter with a credit card I can pay a damn repairman with one.
We’ve had various repair people and inspectors and such out to our house, and they all took a personal cheque, no problem.
Thinking about it, I’m not sure two months is enough time, either. Part of buying a house is getting to know neighbourhoods and markets and comparables and what you want in a house and what you don’t want, etc. etc. If you take the time to educate yourself first, I think you’ll find buying a house a much less stressful experience (it’ll still be stressful, but at least you won’t be stressing because you don’t know what you want and what is a good deal or a bad deal).
When we were buying the first and second times, I was always looking at online listings and going to open houses in neighbourhoods where we were thinking of living. I knew what was available in our price range and what to expect for our money (I think both of the houses we bought were very good deals).
If you truly want to buy see if you can extend your lease on a month to month basis for now. You can tell your real estate agent that you’ll need a 60 day closing and you can give notice again once you’ve decided where you want to live and find the house you want.
Fixer upper or not, get a good home inspector. Codes are getting more and more strict, perhaps beyond what we need. A relatively small project can trigger needing to bring other stuff up to code. Dig into things yourself no matter who does the work. There are many people out there doing work that don’t have a clue. Go to some of the Q&A sites and look at the conflicting advice. Somebody isn’t giving the straight dope.
Once you own a home, you can do what you want, when you want to do it. You do need to remember work must meet the code when it was done before a house can sell.