I bought a house in September. Closed on it in October. I am freaking petrified. That bit of timber with a shingle roof has tied up every spare bit of money I have. The market was not good for buyers and I was a poor one anyway. Still, I managed it even as a first-timer. Here are the things I learned in the process.
Your realtor can make or break you.
I had 3 different realtors and the one I settled on was an accident.
Zillow must get a commission for pairing you up because it works it like a speed dating event. It all feels like one of those scenes from old movies where you end up at a second-hand car shop and some slicked-back sales guy is trying to put the moves on you. Hard to trust anyone who finds their way into your life like that.
And they all want you to sign a contract with them. If you can’t see yourself recommending them to your boss or to your daughter to buy a house, don’t sign with them.
A good realtor is going to know the area, know the market, and listen to what is important to you. They shouldn’t push you to spend over your limit or make hasty decisions that you aren’t comfortable with. Remember the final opinion is yours; they aren’t spending 30 years of their salary.
Finally, they present you with all the details and information you need. Where I live there is an application for a 4% tax rate if it is your primary residence. If you don’t fill it out, the county applies the 7% rate. My realtor told me, my sister (who purchased a house a year ago) did not have that luck. I have already filled out the appropriate paperwork. Sis is working on that now, after having paid a year of higher taxes.
A good realtor may not find you the perfect house, but they will make the process easier and save you money.
Know where you won’t compromise
Compromises are great. They solve problems between siblings over which show to watch first (The Great British Baking Show), and between families about where to spend the holidays (you always pick the place with more beds, always, always, always).
But sometimes compromises suck. On big purchases, even small compromises feel like big losses. That is why it is so important going in to know exactly what you won’t compromise on, and that everything else is in the wind.
You have to be realistic in this market. Unless you are related to everyone’s favorite reality tv president, you aren’t making dream house purchases. That means you need to decide what you need and a few things you have to have. Get clear on them and then do the hard work of coming to terms with all the fun things you won’t get.
Having a 4 bedroom house might mean that your kitchen doesn’t look like it came right out of an HGTV episode, or maybe it’s the “Before” model. Think it through as much as you can then list it out and stick to it.
My non-negotiables were:
- 1.5 bathroom minimum
- No carpet
- No HOA
- No main road
This is the process of going to a lender and having them do some basic hocus pocus to decide if they would give you a loan for a house.
They will come back with a number that they are comfortable lending you based on almost no information. This can then be used to make sellers feel better about you putting in an offer on a house. Not sure why this system works but go ahead and do it. It makes your offer look better for some reason and it will give you a very general idea of what a bank might be willing to give you to purchase a house.
Run Your Own Numbers
That said, put no stock in the number the bank gives you on your pre-approval whatsoever. They know nothing about you, your situation, or your risk tolerance. Consider the numbers like the answer you might get from a toddler if you asked how much you should spend on a house at best and a psysic’s guess at PowerBall at worst. Treat with equal amounts of distrust.
Run your calculations. Look at how much you make and where the money goes. Know how much is left over and what you can afford. Only you can make this decision and you need to take the time to look at the data.
Interest rates are going to matter so if finding a house takes you a long time, you should do this several times and reevaluate your budget.
I was preapproved for a $250,000 mortgage. After running the numbers I set my budget at $200,000. As interest rates rose, I dropped it to $180K. The house I bought cost $175. Run your own numbers and adjust as you need to. Don’t overextend yourself and wind up house poor.
Stop Moving Things Around in Your Finances
When you apply for a mortgage lenders look at the last 3 months of your finances. They expect you to have a very sound logical explanation for everything. All the money coming in, all the money going out.
Things they do not like:
- Large random money deposits
- People who own their own businesses
- Gifts of cash
- Large transfers from one account to another
- Borrowing off of Life Insurance Policies
- Random credit checks
If at all possible stop messing with stuff in your finances 3 months before applying for a mortgage. Do not apply for any new credit cards or do anything that would require a credit pull. If you are getting a gift to help with the down payment, get it into your account earlier than this 3-month mark. Then let stuff sit. It makes them happier.
As for folks who run their own business or are smart enough to use Life Insurance Loans, we are just screwed. They don’t like us no matter what we do.
Understand What Type of Loan You Have
There are a lot of different types of loans for houses: FHA, USDA, and conventional. Each of these changes where you are allowed to look for houses and how much money down you have to have. A USDA loan can get you into your own home with no cash upfront but you better enjoy living in the middle of nowhere. If that isn’t for you don’t bother getting one of those.
You are fixing to make the biggest purchase of your life and sign away 30 years to this endeavor. Learn the terms of what you are signing.
Closing Always Costs More than You Thought
It is freaking expensive to close on a house. The realtor gets their cut. Then the mortgage company keeps making up fees till the bill looks like trying to check out of an Air B&B.
You will end up with a huge closing bill. Expect it. And if you are refinancing, expect it again. Be ready and plan to have that much cash on hand. The easiest way is to wire it to the attorney’s office ahead of closing rather than deal with a cashier’s check.
Buying a house was brutal. The process was long, the paperwork was tortuous and I felt like I was signing away my unborn children with how often I signed my name to things I only vaguely understood. Still, I am happy with the outcome. I now have a small house that is mine. I put in the work to make sure I am comfortable with the payments and get to build equity while paying the same as I would renting an apartment. Plus I don’t have to ask permission to paint the walls or get a dog.