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3 Lessons I Learned When Looking for a New House

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Lessons I Learned Looking for a New House

This is a crazy market in which to buy a house. While I knew that from watching the news, recently we got to experience the market firsthand because we’re moving from Arizona to New York. The plus side is that our house in Arizona sold within three days of listing. The bad news is that we had to visit many properties in New York and put in offers on three different houses before we finally got one. Along the way, there were many lessons I learned while looking for a new home. These were the most important ones.

Beware of Low Prices

We started our search by looking at houses at the lower end of our price range. We have one child starting college this year, and two more in the next five years, so keeping housing costs low made sense. However, we quickly veered away from those houses for two reasons:

House Problems

Most houses in the lower end of our price range had problems. Two of them stunk. One smelled throughout the house, and the other smelled fine until we opened the basement door. Then we were confronted by an awful odor we couldn’t place. Others were outdated or had a strange layout such as having to walk through one bedroom to get to another one.

Neighborhood Problems

If the houses in the lower price range didn’t have problems externally, the neighborhood did. We saw one meticulously kept and updated property. However, it was the nicest house in the neighborhood, which means it might be more difficult for us to sell later. Plus, the neighbors were gathered outside and started talking about us as we walked into the house. Not the type of neighborhood in which we wanted to move.

Beware the Unkempt Exterior

Lessons I Learned While Looking for a House

I was amazed how many homeowners didn’t attempt to create curb appeal. We walked up to homes with dirty siding, peeling paint on the window frames, and a rotted piece of wood with a hole on the steps to the home, just to name a few problems.

Unfortunately, many of the backyards weren’t much better. One had a tiny mowed section, but the rest of the small yard contained weeds and overgrown grass.

If you want people to buy your home, try to make the yard and exterior of the home inviting! Not surprisingly, most properties with unkempt exteriors were also not in good shape inside.

Final Thoughts

Finding a home to purchase is a challenge no matter when you’re looking. However, in this current seller’s market, there are important lessons I learned when looking for a new house. Hopefully, we won’t need to buy another house anytime soon, but if we do, I know what to look for and when to walk away, sometimes before even seeing the inside of an unkempt house.

Read More

Declutter Your House Like You’re Moving and Make Some Cash

Making an Offer on a House

Shopping for a New House

 

Buying a House: How Much Can You Buy

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This post on behalf of Emortgage Calculator

One of the more important parts of buying a house, is not over spending on the house that you plan on buying.  Despite all the headlines during the recent real estate boom and crash, people are still trying to buy much more house than they can reasonably afford.  When they do that, any little setback can be a disaster to their housing situation.  Think about it; if you’re already stretching to pay the mortgage, and you lose your job or have some other major expense, will you still be able to pay the mortgage next month?  Probably not.   And that’s where the trouble begins.

door keyMany will say that you shouldn’t buy a house where the mortgage payment accounts for more than 40% of your income.  Some will include the escrow and utilities into that equation, some do not.  Being the frugal fellow that I am, I suggest you shoot for a far smaller number than that.  If you want to truly be able to afford your house, the mortgage payment, including escrow (but not utilities), shouldn’t exceed 25% of your income.  If you really think about it, do you really want to pay any more than one quarter of your income on just your house?  How will you afford anything else, let alone pay down debt?

There are several ways that you can estimate how much house you can buy.  Your lender will tell you how much you can buy and still qualify for the loan, but that’s a terrible way to go about it.  They are only interested in completing the loan, not whether you can pay for it for 30 years.  Many of the real estate websites will have a loan calculator on their sites as well, which can give you a pretty close estimate.  If you’re in the UK, the Emortgage Calculator can help you estimate those costs.  Most calculators will ask you a few simple questions.  How much is the house worth (value), how much will you borrow (loan total), how long will you borrow it (Term), and at what interest rate (Rate).  Using those numbers, the calculator will amortize the loan, and return the estimated monthly payment on the mortgage.  Use that number, plus an estimated escrow amount (roughly 20-25% of the payment amount makes it a safe estimate), and you’ve got a number that you can use to determine if the house is too much house for you.  Then, you can continue on with shopping for a house.

A few other notes.  Yes, an “interest only” loan gives you a much smaller payment amount and may seem like a good way to get into a house that you otherwise couldn’t afford.  But, you’re only paying interest for that period.  When the interest only period ends, so does your affordable payment amount.  Then, you’re stuck with a much larger payment, and all of the principle of the loan.  Same goes for an “ARM”, or “Adjustable Rate Mortgage”.  The payment is nice and low before the first adjustment period, but when that adjustment happens, the payment can go up by a good amount.  Avoid both and stick with the conventional 15 or 30 year mortgages.  You’ll be glad you did.

photo credit: woodleywonderworks

Making an Offer on a House

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In my opinion, buying a house is a lot more complicated than it really should be.  Making an offer on a house plays it’s part in that complication.  You’d think that making an offer on a house you want to buy would be as simple as telling the owner that you offer $xxx,xxx amount and they either accept or reject that offer.  But, if it were that simple, I wouldn’t feel the need to write this article, now, would I?

Depending on your situation, the offer you make can take on many forms.  When we finally found the house we wanted to buy, and decided that we were going to make an offer, we found that there are a few questions that we had to ask ourselves.

How much will you offer?

How much you offer on the house depends alot on your local market.  In some places, the market is pretty depressed, so making an offer that is way below the asking price is pretty common.  In other places, like here in North Dakota, the market has been pretty stable, so offering way below the price could be construed as an insult to the owner.  The house we wanted was originally listed at $138,000 when we first looked at it.  It had been on the market since June, and a week later, when we went to look at it a second time, the owners had just dropped the price down to $130,000.  We knew that we could probably afford the $130,000, but didn’t want to jump at the asking price.  We did that with our first house, and regretted it.  After discussing it with our real estate agent, we decided that offering $125,000 was well within our range, and wouldn’t be so low that it would insult the sellers.

Contingencies to the offer (Only ifs)

New money.One thing that you likely won’t think about, is the contingencies on the offer.  One of these was pretty simple for us.  We already owned a house, and would need to sell that house before we could afford a new one.  So, one of our contingencies was that our house had to sell before we could close on the new one.  If you’re going to have a home inspector inspect the house (I recommend you do), your offer should be contingent on the house passing the home inspection.  There might be appliances that aren’t explicitly stated as remaining with the house.  If you’d like those appliances, you can make the offer contingent on them remaining after the sellers have moved out.  There might be repairs that you think should be done before you move in.  You can make the offer contingent on those being completed.  Think of the contingencies as negotiation factors.  You’re saying “We’ll pay you this much for the house, only if you do this.”

Counter Offers

Once you’ve made the offer, the real estate agent will take it to the sellers of the house for them to approve, reject, or counter.  If the seller makes a counter offer, they may accept all the contingencies, but ask for a higher price.  Or, maybe they’ll accept the price, but want some of the contingencies removed.  It’s all part of the negotiation.

Accepting the Offer/Counter Offer

If the seller accepts the offer the first time, then it’s on to the rest.  If they counter, you’ll have to accept, reject, or counter offer their counter offer.  Again, it’s part of negotiation, so be sure you understand what it is that has changed and what it is that you’re asking for.  At this point, you’ll likely have a bit more paperwork to sign.

What’s next? (After the offer is accepted)

After an sales agreement has been agreed upon, several things will happen.  You’ll want to start the work necessary to secure your loan.  The sellers will start doing any repairs or other changes that you requested in the contingencies.  If you chose to have a home inspection, you’ll want to get a list of home inspectors in your area and contact one as soon as possible to get the inspection scheduled.  All of these things will have a time frame that they will have to be completed within.  In our case, we wanted to have a home inspection done.  We had 5 business days after the offer was accepted to schedule and have the home inspection done.  Once the home inspection was done, we then had 3 additional business days to decide if there were any repairs that would need to be done to the house in order for it to have passed the home inspection.  If there are repairs, you’ll have to request the fixes through your real estate agent who will deliver them to the seller.  The seller can then decide whether they want to make those fixes, or not.  If they choose to not do the repairs, and you don’t want to go through with the purchase, that effectively kills the deal.  If you still want to go through with the purchase, you might be able to have the sellers put the funds for the repair into a repair escrow account for your use later in making the repairs.  If the seller doesn’t want to make the repairs, and doesn’t want to pay for them either, you have the choice of killing the deal, or removing the home inspection contingency on the offer.

Once all the repairs are made (or negotiated out), and all the other contingencies are made, you’ll move onto the financing and closing portions of your home purchase.  Be prepared.  The closing process is drawn out by regulation and can sometimes take up to 90 days or longer.

photo credit: Neil Armstrong2