So I recently got converted to a full time employee from a limited contract. I’ve been renting the same apartment for a very long time now, and now that I’ve got some security, I’m giving serious thought to owning my own condo or small townhouse (I don’t need any further room). I like the area I’m in now, though I wouldn’t mind being closer to work, though obviously prices aren’t guaranteed these days (another reason I’m thinking of acting now).
Trouble is, I have no idea how to begin. I’m with a credit union I’ve asked tentative questions of in the past before my conversion (although both contacts haven’t replied to emails for months now). I have access to a down payment. But this is so big I’m completely overwhelmed by possibilities.
Thoughts? Advice? Links to thoughts and/or advice?
Get a good realtor, credit unions are unlikely to be helpful. Ask for recommendations if you know someone who bought in the last few years. Except hidden costs like closing and home inspection (and definitely don’t skip the inspection).
Complete YMMV opinion from me: condos suck and HOAs suck.
The credit union was for the loan. And I live on my own, and simply do not have a need for an entire house (not to mention a yard and unnecessary stuff like that).
I agree with everything thelurkinghorror said. I’d add to that that you might want to consider talking to a bank or other mortgage lender (I used Box Home Loans) to get “pre-approved”. That’ll give you some assurance that your budget is what you think it is (i.e. that there’s a financial institution out there willing to lend you the money you’re going to offer the seller to purchase the condo / townhouse).
I can’t help but disagree with some of this advice. My wife is a Realtor and by far the fewest problems she encounters on the lending side are with our local credit unions compared to the big banks like Wells Fargo and Chase, which pretty much manage to fuck something up every time. Make an appointment with your CU and talk to a mortgage person there. Feel free to shop around to other banks or lenders and compare rates and costs. Unfortunately, I suspect the nature of your employment history might limit your ability to get a loan since I seem to recall lenders wanting to see at least 2 yeas of full time employment, but it can’t hurt to go in and find out for sure. Plus, there are other factors that might be taken into consideration like the size of your down payment.
I would not bother getting a Realtor until you know you are even eligible for a mortgage. I do agree with the advice to talk to friends/colleagues and get recommendations on both the agent and lender.
If you need to borrow, then getting pre-approved is probably your first step. It allows you to see about how much you can afford. That’s different than how much you want to pay, but it puts an upper limit on your search.
Once you have an approximate price point in mind, then you can narrow your searching. Figure out what things you want to prioritize (location, house and lot size, schools, neighborhood look/feel, HOA or not, age of home, other various amenities) then use that to narrow your searching.
Consider what attributes contribute towards preserving or increasing resale value and think about whether those align with your priorities.
Many times you’ll be able to get a feel for various neighborhoods by just visiting open houses on your own. Once you are closer in your mind to what you want, finding a realtor could be helpful. Look for recommendations from people you know that have actually used the service.
There is simultaneously a lot to think about, and not that much. Ask questions, get answers
I’m sure the credit union will respond now you’re serious. If not, you don’t want to deal with them.
A townhouse seems like a good starter for you.
You can check prices on line, and you can drive around places you might be interested in to see how they are at night. If there are message boards for your town, join them and listen. Check out police reports.
Once you have a good familiarity with prices and neighborhoods, interview a few realtors. Don’t get sucked into making a bid too soon - the market isn’t so hot anymore and you probably have time. Once you looked at a few places take a day off from the search and lay out what you want in a place. Then you can search with more direction.
The way I started was by figuring out a range I could afford and going to open houses. Check Realtor.com for both. If you click on a property and scroll down, you can get an estimate of monthly payments to help get a feel for the actual outlay, including P&I, taxes, insurance, HOA if any.
Once I had some idea of what I was looking for I got a pre-approval for the top of the range I was interested in, and found a realtor. I contacted a realtor.
I agree with starting by talking to your CU and/or a bank to get pre-qualified. Once they tell you what (they decide) you can afford, you’ll at least have something to work with. If they tell you they can give you a loan for $150,000 that puts an upper limit on what you can look for.
Also, remember, it’s just an upper limit, you don’t have to spend that much.
Someone mentioned that your employment history could be an issue. You can try to get in front of that by having your employer write a letter (or you write one and have them sign it) stating how much you’re making now and that they don’t foresee that changing. It really just needs to be a few sentences. Just something like “Leaper is currently making $15/hour and works an average of 40 hours per week. Leaper’s current annual income going forward is approximately $30,000 and we intend to keep Leaper employed, at that rate, for the foreseeable future”.
Bring in a few paystubs that show your previous income and how it matches last year’s W-2 and a few newer paystubs to show how much you’re making now. They’ll call and verify this as well.
Once you have that all figured out, it’s just a matter of looking at houses. IRL or online. When you find one you like, tell the person showing it you want to put in an offer and they’ll walk you through it.
You can also get your own agent to help you as well.
Make sure you understand why you want to own the real estate you will be living in, and then verify that owning it would in fact accomplish that.
A mortgage is a product like any other. Get pre-approved, but keep shopping. Rates vary by provider. Rates vary by type of loan.
Once you have a number at which you are pre-approved, start looking at what that buys you. Zillow can give you a rough idea, maybe help narrow down neighborhoods etc. Then start looking at properties with an agent. If you buy without having seen at least a few dozen properties, especially on your first purchase, you ain’t doing it right.
And as said by others, that pre-approved amount is an upper limit - not some goal. I have always found comfort in living in a cheaper house than I can afford.
If I recall correctly, the formula that is used to calculate what you can afford is called the Back-End Ratio ~36% of your monthly gross. That looks at all of your existing personal debt (auto loan, school loan, credit card debt) plus your Front-End Ratio. The Front-End Ratio is PITI - Principle + Interest + Taxes + Insurance (you can find lots of online resources for calculating this).
If it is a condo/townhouse you would also have a monthly Homeowners Association Fee.
And, if you loan is more than 80% of the total cost, because you have a lower down payment, there is something called PMI - Private Mortgage Insurance. It gets paid out until you have sufficiently reduced your principle to below 80% of total cost.
Get to know these numbers for your situation, they’ll help you understand what the loan industry expects of you.
Likely none of the loan people will mention them to you, but they are used in their calculations.
My first advice would be to sit down, compare the rents in your area with the cost of home ownership, and ask yourself if you really need to own.
I think over the course of my 20 years of home ownership, I’ve enjoyed being a homeowner, but I think the costs have more or less been a wash. The only real perks have been when I wanted to make some very specific upgrades that a landlord wouldn’t provide or a HOA might not tolerate.
Also, all HOA are financially and morally bankrupt.
I joined my credit union for the sole purpose of buying a house. Not only did I get my home loan through the credit union, but I also got my realtor through them. I’m sure there are downsides to doing something like this, but it was convenient for me. Especially with it being my first home and me jumping through all the hurdles all by myself and being scared out of my mind about the whole thing.
My realtor asked me for my “must haves” and I kept the list short and simple. I wanted a small house (I told him I would not consider anything more than 1,000 sq ft, and that I really preferred something in the 700-800 sq ft range) within five miles of my office. Of course, he also knew how much I had been pre-approved for. And as difficult as it was, he stuck within those parameters and without any complaints to boot. It was slow-going and frustrating at first, but then I went on craigslist and found my dream house for sale by owner. But my realtor earned his fee by doing all the other stuff. If there’s one quality that I valued in him, it was his quick response time. I saw that craigslist ad and we were checking the house out and making an offer for it all within a few hours. I would not have this house if the realtor had been just a little slower checking his emails. (I also would not have it if my work hours had been less flexible, so keep that in mind too).
It is overwhelming, but your realtor has a vested interest in keeping the stress level down so you don’t freak out and bail out of the whole thing. My realtor helped me to “understand” every step. I put understand in quotes because my understanding never progressed beyond the “for dummies” level, truth be told. But at least I never felt so overwhelmed that I wanted to bail out of the whole thing. Also, my realtor did a great job of making me feel so excited about finding my special little place that I kinda forgot to be a nervous wreck.
Like you, I rented for a long time. I wasn’t even that crazy about owning property since I believe its financial benefits are oversold. But four years in, I have no regrets. My house still feels like a “dream”, and I feel like I paid the right amount of money for it. I am also glad that I didn’t deviate from my “must have” list. Doing so would have made my life easier while house-shopping, but I think it would have left me with some disappointment.
Since you specified condo/townhouse, keep in mind that you will be moving into a community. Read the rules of that community and decide if it works for you. I am always surprised at how many people never read the rules and are outraged when those rules are enforced. Mind you, many rules are not (or only selectively) enforced, but you should at least know about them before you buy.
It sounds like OP doesn’t know where to start as far as the process, so that’s why I suggested realtor as the CU doesn’t handle the actual process. Obviously you have to talk to lender, but it sounds like finances are not the main issue. If they have the ability to suggest a realtor and you trust them, then sure.
One more thing for OP: how long is “recently” converted? Usually they want 3+ months of employee paystubs. But they want 2 years (!) of independent contractor pay history.
I love my condo and I have no problems with my HOA. The fees have gone up only with inflation, and pays for all kinds of stuff that I’d otherwise have to deal with on my own (paint, roofing, landscaping, garbage, driveways, structural inspections, pest removal, and other stuff). They set aside money for known future maintenance and have been responsive for pretty much everything. Once, a huge tree blew over in strong winds and they had a crew out taking care of it in hours.
Sure, there are some horror stories about HOAs, but probably the worst situations can be avoided with just a little research. And the benefits to first-time homeowners are significant.
In my first 20 years of home ownership, I paid off my mortgage. (It didn’t cost much more than renting would have.)
During that time, the value of my property went from £60,000 ($73,000) to £150,000 ($183,000).
10 years later I’m retired, living in a house I own. (I do wonder how renters manage when they retire…)
First, go to your CU in person and talk to the loan officer directly. Tell them what you want to do and find out if you can even get financing.
Assuming they approve you for some amount, you will then be able to determine where and what is the best thing to buy. DO NOT BUY A HOME THAT IS CONVENIENT TODAY! You will regret it and it may turn out to be costly. You’re looking to make the largest single purchase you will ever make at any particular time in your life. At the very least you need to decide where and what you think your wants and needs are likely to be and take you in 10 or more years.
The rule of thumb I used when buying my homes was, I plan to die here. So financing, size of home, size of yard, ease of access in my old age were all factors. If I thought something would take me away from the area in 10ish years or less, I wouldn’t have bought. The hassles and tax consequences in my state when selling a home make it not worth it depending on what and where happens to cause a move. YMMV
So, once you have the money figured out, research realtors in your area just like you would any other contractor. Do web searches, go to specialized websites for realtors that give ratings and testimonials, check their BBB rating etc.
Some other factors to consider, how much home do you want to be responsible for maintaining? Are you ready to understand that when that wire goes bad inside the wall while your out of town for two weeks, YOU have to get the electrician to fix it and you have to get the contractor to repair all the drywall the electrician had to tear out to fix the wire and you have to pay them yourself out of your pocket on top of all your regular bills and replacing all the food that went bad and cleaning the now nasty stinky fridge.
On the plus side you can paint, hang whatever wherever however on the walls change the doors and trimwork, get new appliances that you like, find the just right toilet for you, not to tall, not to short and you can put the seat on it you want, you know the one, soft and cushy and padded.
Renters with some fiscal ability and sense can invest their money in ways that have a ROI that is just as good (if not better than) real estate.
My city has a number of apartment complexes that are targeted to people 55 or older with incomes less than some amount. The average middle class homeowner may feel like such a place would be a major step down for them, but the average lifelong renter probably doesn’t have that attitude. Rent controlled apartments and low-income housing are also helpful.
Usually people who rent their whole lives have good reasons for doing so. Like, they are too poor to afford a downpayment or to be approved for a home loan. Poor people work as long as their bodies hold up; they don’t really retire in the traditional sense of the word. For the remaining lifelong renters, most are living in locations where renting is the norm.
