First Time Homebuyer

RevDevil

RevDevil

Joined
Nov 9, 2009
Messages
44,314
So I think it's about time I buy a house. I'm tired of renting. The landlords I've had the past 10 years have been good, they have maintained their distance and have been paid on time and promptly.

So anyone have any tips/suggestions for a first time homebuyer?
 
Get a home inspection done! And you may want your own appraisal. I'm a residential appraiser, BTW. If you have any questions feel free to PM me. Good luck!
 
Make sure you dont rush into a house. Take the time to get a good home inspection. Always remember you will pay for location, so if that is most important you can always build more onto the current home.
 
Thanks dt, I will take you up on that offer you can bank on it. I was told that inspection was key. For example, large trees near the house may present plumbing/sewer problems as roots may penetrate tubing.

Is there anything in particular to look for when selecting someone to inspect?
 
It really depends on what and where you're buying. I would want to make sure the electrical and plumbing systems are up to snuff. The roof needs to be sound. Remaining economic age life of the major appliances especially HVAC stuff. Make sure you hang out in the neighborhood for some time and make sure you want to live there. The more you know about your potential new neighbors the better. If you have kids or plan to have kids, one of your first priorities is the school situation. Oh yeah, ... and don't pay $450K if you can get something that is the same or better for $400K for example. It's called the 'principle of substitution'.
 
A home inspection is a must. Don't take a chance on such an expensive investment. I was a licensed inspector for a couple of years and believe me, even brand new homes have issues, some potentially very costly. Just remember, no home is perfect so don't let a few discrepancies get you down.
Get a fixed rate loan!
 
Sorry. Didn't fully read your last post. I don't know how to go about choosing an inspector. Generally speaking I would say to get a recommendation from a friend. Maybe Hoopster can chime in. Some guys whose reports I've read were not worth a darn and some are so picky that they will kill you're deal and you'll never get a loan. From a buyer's perspective, though, I'd want someone who is a little picky and very experienced. You want to know as much as you can.
 
I will begin the loan prequalification process sometime this week. I was advised to seek out a mortgate from a credit union if possible seeing as so many banks are barely treading water at the moment. If all else fails, I'll check into the bank I've been with for over 10 years.

Fixed rate is a must. I have a small down payment ready to place, so 100% financing will not be an option. I've checked my credit report and I think it is above average for the given economic problems everyone has. My car is paid in full, auto insurance is inexpensive (it pays to drive carefully).

I have already contacted my auto insurance company and asked about adding home owners insurance (flood/fire is a necessity in Arizona). Seems to be reasonable from what I've been told. This process is both exciting and nerve wracking at the same time. I can't wait for the first night of buyers remorse. :)
 
I'd be leery of buying at present as RE values are dropping. Without a substantial down payment, you're locking yourself into long term debt, trading a landlord for a bank. Unless the value of the property will appreciate more than what you're paying in mortage+insurance+maintenance+utilities, you're losing $. In that case, it would be better to invest your down payment (get a good financial advisor -- one who is not selling securities for commission, but earns a fee based solely on his services).
 
I do not entirely agree with the above statements. In many areas around here values are holding steady or appreciating. There are a lot of foreclosures and short sales available. That's what I'd be looking at. Your down-payment will need to be substantial, probably 20 or 25 percent. FHA was doing some 97% stuff recently with loan limits nearing 3/4s of a million if you qualify. Find a successful and trustworthy loan originator to work with and let him or her explain your options to you. Not sure exactly how the foreclosure freezes are currently affecting the markets in AZ. If they unfreeze at some point in the near future then the market will become saturated and values will fall. If it takes you 50 grand to fix up a 300K house to where it is nicer than a 400K house you will come out ahead. It can be harder to get loans on these properties because condition is very important to lenders. Nevertheless, I would say it is still a buyer's market in most areas at this time. Don't over-pay and don't buy a lemon. Real estate is one of the most sound investments you can make, historically. You end up building equity instead of flushing your money down the toilet each month. :)
 
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Do you have a 401(k) plan? You will qualify for a $10,000 no penalty distribution as a first time home buyer. Also, I recommend watching a few episodes of the tv show Holmes on Homes to learns about home construction and the potential pitfalls of shoddy craftsmanship.
 
Consider how much it will actually cost you to live there. As a renter, you think it's just rent and utilities. The bank will take taxes and insurance into account. But keep these things in mind:

Depending on materials and weather and so forth, a house will typically need to be painted every five to ten years. That costs a few thousand dollars. Maybe you can do it yourself for a few nundred. I painted mine about two years ago. Budget about $25 per month for your painting fund.

The average life of a water heater is about 10 years. To buy a new one, get it put in, and take the old one away costs about $600-700, budget about five bucks per month for your water heater fund. I replaced mine about a year ago.

The average life of a furnace is about 15 years. A new one gas furnace installed costs about $6000. Budget $34 per month for your furnace fund. I'm just researching getting mine replaced.

A typical dishwasher lasts 10 years. Delivered, installed, and old one removed, expect to pay about $500 for a nice model. I did mine about three years ago. Budget about $4 per month for your dishwasher fund.

A typical refrigerator lasts about 12 years. Delivered, installed, and old one removed, expect to pay about $700 for a nice model. I did mine last year. Budget about $5 per month for your refrigerator fund.

A typical asphault shingle roof lasts about 20 years. Replacement is about $10,000. Budget about $35 per month for your roof fund.

Interior carpet depends a lot on your usage, but let's say 12 years. Replacement can be $4,000. Budget about $28 per month for your carpet fund.

No one of these things is really that bad, but add them up and you need to budget $150-200 per month set aside in a "major maintenance" fund.

Especially if you buy a new house or a house where someone has done some of these things to spruce it up for sale, you may not see these sorts of expenses for the first few years. You can get lulled into a false sense of "not my house" and start skipping those deposits or be tempted to "borrow" a bit out of that fund. Trust me, these expenses are coming and you need to be prepared for them.

My house is 14 years old. It's a good house, well-built, modern. But, it still seems to need some minor thing, some $20-50 repair, every month. I almost made it through October without a Home Depot run... almost. Yesterday, $17.95 for a toilet fill valve assembly since the one in the master bathroom started leaking. That's not a big deal, but it's just one example of little things that crop up. When you sign your mortgage, you may see "Press Hard, you are making two copies." Lift the first up and you'll see that the second is your Home Depot credit card application... they know, you'll need it.




Regarding mortgages: there is no such thing as a thirty year mortgage. "Wait a minute," you may object, "I have the brochure right here and it says 30-year." No. There is a plan sold as a "thirty year mortgage" underwhich you rent the property for fifteen years and then start making payments on a 15 year mortgage. Look at the amortization table for a 30-year mortgage, Look at the 180th payment. And you will see that you will have paid off 5-8% of the principle. 15 years of making those monthly payments and you will have paid off just 5-8%... but during those 15 years, you paid all the tax, all the insurance, and did all of those repairs and maintenance things I mentioned. With real estate appreciation averaging about 3%/year in most places long-term, your extra costs in taxes, insurance, and maintenance and repairs will have errased your apprecation. 15 years into a 30-year mortgage, you will be financially, overall, no better off than you would have been had you rented for 15 years and let the landlord pay the taxes, insure the strucure, and do all of that maintenance and repair stuff; you will have, as Mr. Alberta Ed so nicely put it, traded your landlord for the bank. So, do not consider the so-called 30-year mortgage; you now know it for what it is, a plan underwhich you rent the house from the bank for 15 years and then start paying on a 15-year mortgage.

Buy only what you can realistically afford on a 15-year mortgage setting aside $150-200 per month for your major maintenance fund. And YOU do this math and make this determination, not the bank.
 
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I was being careful for a while which part of thea reason I held off and rented for as long as I did. In my area nice homes are really more affordable now, which is why I decided to take a chance. I figure if I wait too long, the market will pick up then I'll get stuck once again.

@ dt - I was looking precisly at forclosed homes. New construction seems to be popping up all over. I'd much rather have a home that has a little character than to buy a house that no back yard, no lot, nothing. I like brick homes instead of stucco and frame. Those newer track homes have lots of problems and the local companies that build them have been sued left and right.

@ Glint - Yes, I do have a 401(k), I'm fully vested as well. I've been at my current job for 4 years. I'm interested in the no penalty distribution, I'll have to look around and call my FA.
I've seen Holmes on Homes, great show. I do have a friend at work that is a contractor by trade and a firefighter as a result of the economy. He would be willing to lend a hand as well and eyeball the place if I asked him.
 
Gollnick has just explained the concept of "reserves for replacement". And quite eloquently, I might add. It is sort of a pay as you go program for people who own real estate. It is required for most investment properties. Compound interest can be your friend here so pay attention to it. Saving $16,000 can buy you a $20,000 roof with interest. Home ownership is not a ticket to wealth. Values will wax and wane with the market. People who have used their homes as ATM machines are the ones who are upside down and getting foreclosed upon. People who buy well within their means and keep ahead of their payments are still high and dry.
 
Oh, and don't buy a brand new house in a new development. I did that once. First of all, you will spend literally a thousand dollars on little things which builders leave out. You'll walk into your new dining room and see your nice chandeler light and flip the switch and see on or off. Eight bulbs on full... or nothing. And so it's down to Home Depot and $12.95 for a dimmer. You go to hang your bathrobe up on the robe hook on the back of the bathroom door and it just falls to the floor because there is no hook. And so its's down to Home Depot and $5.95 for a hook. In the kitchen, you go to hang your roll of paper towels, but there is no holder. So it's down to Home Depot and $6.95 for a paper towel holder. And so it goes. And not one of these things adds one penny to the resale value of the house, just to your comfort living there.

The other MAJOR risk buying in a new development is that if you have to sell before the development is done, you will be selling against the builder. He has A) a construction loan he has to pay on, B) a big margin he can eat into to lower the price on the house, C) workmen and materials on-site to do things like finish a bonus room for very little, and D) almost finished houses wherein the new owner will be able to pick out his own colors and options and such. It is really, really hard to sell against the builder.
 
There is not necessarily a real difference between a great deal on a pre-occupied home and a great deal on a new construction home. Many builders are hurting pretty bad financially and are letting stuff go for little more than cost to build. Quality of construction is a key. I'm sure you've heard it said "they don't build em' the way they used to". Cliche. Many newer materials are far superior to what was available 40 or 50 years ago. I'd rather have a home with new vinyl sidiing than old asbestos shingles. I would say the work ethic of the builders and their workers is inferior these days. Defects are what you need to look for and many do not become apparent for years or even decades. New or used get a quality inspection.
 
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Congratulations on buying a home. It feels like a home when you buy, rather than rent. When you buy, the improvements and care are now your assets, not the landlord. You have freedom to change it as you please. You should do a PITI loan so you pay property taxes and insurance tied into your loan, and that way, you do not have to worry about getting behind on those. You will have a substantial write off, so your tax return should be better than before, this used to be a huge incentive to buy a home, but it seems it gets sliced more and more every year. If you were good about paying your rent on time, you will find a way to pay your mortgage on time. Truly, it is a great thing to do, the American dream. You need a crystal ball to know if it is the right time, but now seems to be better than last year, so go for it. The deals are out there, do not be afraid to bargain hunt and deal. Your name should be Will Dicker.
 
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