We have never owned a home before. For one reason or another we have always been renters. For the last three years we have been renting a house, but we have decided it’s time to buy. We are pre-approved for a mortgage. We have just enough saved to make a down payment and we found a house we like.
And I am, right this very second, freaking the heck out. I don’t know what kind of advice I want or need, but I suddenly have the overwhelming desire to talk this through with someone who is totally neutral. I have never ever even considered making a financial decision this… Huge.
Its a nice home in a good neighborhood. We are making an offer of full listing price but the owners pay closing costs. I think this is good value for the area and our agent thinks the buyers will go for it based on her conversations with the selling agent. It makes it about a 300k house in a 350-400k neighborhood. I’m trying to wrap my head around other expenses though. It’s about 900 Sq feet bigger than our current place. It’s oil heat in SE Pennsylvania. It’s on a half acre of land (which feels like SO MUCH LAND to care for. No idea how to do that. ).
I don’t know. Anyone want to talk me through this?
Forget that you owe almost 1/3 of $1 million and enjoy the house
Get a good inspection of the house. Make the inspector try every light switch, outlet, faucet and fan (if they exist). Try all the appliances, windows, and doors to include locks. Try the A/C and heater.
Add the mortgage to your budget as just another bill. Set up auto-pay if you can and just forget about the money and enjoy the house.
Enjoy the large yard. Make upkeep a fun activity instead of a chore. Riding around on a tractor sipping your beverage of choice and listening to music is fun and relaxing!
I remember buying my first house – it was around the time that dinosaurs still roamed the earth, but never mind. I was really intimidated by the awesome forms I had to sign and the commitments that seemed to create a lifetime of debt – indeed, the term “mortgage” has as its root the Latin “mortem” and French “mort”, for death.
The reality of it is that you’re making a big financial investment in a market that has generally been very lucrative on average, and getting out of it if you wanted to is often even easier than getting out of a lease, especially with something flexible like a variable-rate open mortgage – not that I would necessarily recommend either without looking at the financial markets right now. As a homeowner you generally get to live in a better neighborhood and get higher credit and get to do whatever you want with your own property.
I highly recommend it. Don’t sweat it like I did for those silly first few years!
I second the advice for a good, thorough inspection. Ask people you know in your neighborhood for referrals to home inspectors if you can. A lot of inspectors are shitty but a good one is worth their weight in gold. Remember that every little problem they find is ammo for your final offer negotiation. And any big problems they find may potentially be RUN AWAY-worthy. Make sure they look at the roof, too.
Does the area have gas service? If so, see if the local utility or state offers a subsidy for upgrading to gas heat. Oil furnaces can be a maintenance nightmare and I have a feeling the days of low oil prices are gonna be behind us for a while.
Needless to say, I third the advice for inspection. That goes without saying. Just consider defects in financial and not emotional terms. And most important of all, if it’s an older house with potential issues, get an inspector that has good references. My previous post addressed the general fear of house-buying as a commitment, but the possibility of buying something that will incur unexpected maintenance expenses is also an issue.
Mortgage lender probably requires an inspection. Find out if you can bring a friend who is an experienced homeowner to do your own on top of that. Don’t pay too much attention to some things, sure you want to put a marble on the floor to see if it’s level, but plenty of perfectly good homes will have a little tilt to the floor. The important stuff are the major appliances, what condition is that oil furnace in? Does it have central AC? Does it have an electrical panel with breakers or some ancient fusebox? What are the taxes? Do you have town water or a well?
You also have to be prepared for the costs once you move in, do you own a lawnmower? How long is the driveway, will you need a shovel or a snowblower? Do you own a ladder and some tools? Doesn’t matter how good the condition is because stuff will start breaking as soon as you move in.
When I bought my first house in 1991, I looked at @60 houses before choosing the one I bought, over only a couple of months. And I’m really picky. Right now I think it would take a year or more for me to pick 60 houses to look at. The market is just that much slower in terms of numbers of houses for sale at any given time.
Don’t end up House Poor. This is where you buy into the mortgage limits they offer you and buy a house which pushes your budget so that you end up feeling poor because you have no money left over to live and buy the stuff you need for your new space.
Getting a good inspection cannot be emphasized enough. If you think the guy did a half-ass job and blows off concerns you raise, get someone else. You can’t afford to buy a mold problem, or hidden water damage.
And on that topic, don’t feel shy about ‘looking under the hood’ yourself. This is perhaps the largest single purchase you’ll ever make. Be large and in charge. Look in the oven, the kitchen cabinets, etc. Especially around any sinks, the dishwasher, showers. Closet backs up to a shower? Open it up. Look carefully at the molding at the bottom of walls. Any sign of warping or water? You don’t want to find that water damage later. Take a close look at the furnace, even if you know nothing about them. If it looks strange, ask your inspector about it.
Just don’t start handling or moving people’s properties when you do it, or you’re a jerk.
Don’t go variable mortgage. Rates are low, lock them in for the long haul. Don’t risk a sudden 15% interest rate because we somehow repeat the late 70’s.
It is pretty scary to pull the trigger on such a huge financial transaction. Your price point of $300k versus the $350-$400k neighborhood sounds good. In my layman’s opinion it seems less risky to be on the cheaper side of your neighborhood. Is there an obvious reason why (smaller, needs work, etc.)?
When we bought a house about 12 years ago (not our first) it was a bit run down (and a great value). The sellers threw in a year home warranty that covered appliances, etc. There are several companies out there that offer these. For a first year, or two, it might be something you want to consider as relatively inexpensive peace of mind. We had a heat pump die in the first few months and they replaced it for no charge (over $4,000). We kept the policy for a couple of years until we upgraded everything or at least had a better idea of what condition everything was in.
When I first moved into my house I made a list of some things I wanted to change/fix/whatever and my friends and neighbors told me that list would never get shorter. And, you know what, they were right!
It’s much worse than that. A $300,000 loan at 4.25% over 30 years is a little over $530k if I did my math right.
It’s always fun when you’re signing all the final paperwork and they show you the amortization schedule and it’s this chart covered in these huge numbers that you’ve never seen before.
As for financial considerations: obviously, buy within your means. But, provided you plan to live in this general part of the country for most of your life, don’t view ownership of one house as a speculative investment and stress about the direction of the overall property market. Whether the market goes up or down, your equity will be sufficient to own the one home that you will always need to live in. But the transaction costs of buying and selling are substantial, so imo you should be sure that you are committed to living in a house for at least 5 years, and really a decade or more, to make it worthwhile buying.
On the financial side: I’d certainly look to lock in a long-term fixed rate that leaves you with a comfortable known monthly budget. Although rates have gone up since the election on the expectation of slightly higher inflation, in the big picture they are still close to historic lows, and there’s substantial risk of higher long-term interest rates in the future.
On the inspection: never take a recommendation from your real estate broker, real estate is an incestuous business. As was suggested, ask neutral parties around the neighborhood for recommendations. Remember that your broker does not have a financial incentive to work in your interest, just to get the deal done, and a referred inspector who does his job too well knows he won’t get referrals from the agent in the future. I have always chosen to get two entirely independent inspections, since the expense is a modest part of the overall budget. It’s surprising how two different inspectors differ in emphasis or omission when you have a direct comparison, and I have never regretted the peace of mind. Be present during any inspection and ask questions. Insist that access is opened up to all crawlspaces, attic, basement, whatever there is. I prefer that the broker not be on site for the inspection (i.e. leave after opening up), but the owners may not permit that.
Knock on the doors of your potential future neighbors and say hello. You can dissemble a bit and just say “I’m buying the house next door…” before you’re actually committed to the purchase - you may pick up info if there are any issues with the house or the local neighborhood.
For me personally, noise is an issue, especially poorly trained dogs. If it is for you, drive or walk through the neighborhood without your broker at various times. I have known brokers to bribe neighbors to keep noisy dogs inside when they are showing a house.
Stop by there late at night and just take a stroll around the block. Never really know what’s happening around a neighborhood if you only see it in daylight.
Also, I don’t know what traffic is like where you are, but if it’s heavy like around my way, a test commute or two might be in order. I have many friends who did not do this and bought houses way too far away from their work and now have quite miserable commutes.
Yes exactly. You can’t just ignore the time value of money. The amount that you owe is $300k in today’s dollars, which has the same value as future cash flows adding up to $530k (well, modulo the bank’s profit margin). If you inherited $300k from Great Aunt Matilda next week, you’d have enough to pay off the mortgage in it’s entirety.
Thanks for the responses. Keep em coming it’s helped.
So, I’m looking into if the streets are piped for gas, I’m supposed to get a call back from the gas company next week to discuss if it’s a viable option. I would not have thought to look at that before so thanks! The oil furnace is actually a furnace/boiler with a 15 year old water pump. The furnace itself is from 1984. The house is on well water but public sewer. The owners are including their mower. We probably would want a snow blower but can get by with our current shovel for a bit. The roof is 5 years old. It has some fence but we probably would want to build more because we have a dog. I don’t own a real ladder, I do own tools.
What does any of the above mean practically? No idea.
It’s a little older and a bit smaller, but it was first listed at 360 and then the owners moved and the price has dropped quickly. They just want to be rid of it. Having looked at a lot of houses in the area it feels like it should be selling for 320 to me personally. But I’m not an expert.
