Buying a house

[Puget]

So, I've just put in a first offer on a first house. Since this is a frequent feature in the lives of junior faculty, I thought I'd start a thread to collect collective advice and hard-won wisdom, and hopefully I'll be able to contribute some of my own when this is all over.

I've been renting here for three years, and while buying is expensive renting is crazy expensive (more than a mortgage payment) and house prices kept going up and threatening to price me out, so it's time. 

It's going to be a multiple offer situation in a hot market so I'm trying hard not to get attached. . . at least things happen quickly, it's not like waiting to hear back about faculty jobs!

For those who are old hands at this, what did you wish you'd known before buying your first house?

[backatit]

I wish I'd known that even getting the offer accepted is only the first step. The inspection is more fraught yet. And disappointing, always. Your "perfect" house suddenly develops a million flaws in the eyes of the inspector, and you want to protect it! Resist, and see it for what it truly is, and be willing to let it go (with gratefulness that you wrote an inspection clause into the contract) if necessary. If it comes back acceptable, then rejoice! But also understand that the second you sign the papers, a door will fall off. Welcome that, as it's the new house's way of welcoming you into the fold.

Sorry, I know you wanted some serious advice, but I've owned a lot of houses, and it's a really up and down process, so you might as well laugh about it. And hopefully get some champagne ready - fingers crossed for you!

[Puget]

Sorry, I know you wanted some serious advice, but I've owned a lot of houses, and it's a really up and down process, so you might as well laugh about it. And hopefully get some champagne ready - fingers crossed for you!

No this is exactly the sort of advice I can use-- the whole process could use some lightening up for sure. Thanks!

The house was built in 1890 (though it has been renovated since then of course) so there is no doubt inspection is going to reveal some interesting things if we get that far (inspection here happens after an offer is conditionally accepted). I'm lucky in that my dad is a retired contractor and has been very helpful with long distance consultations. My phone is now filled with all sorts of close ups of window frames and foundations and such. 

[clean]

You have put in an offer, so this may come too late. 

My advice is always to buy the least house you need, put a good down payment on it, and plan to pay it off quickly. 

I do a finance problem with my classes where, as an example,  one can afford a $200K house, but buys a $100K house.  The buyer makes the payment of the $200K house.  After under 8 years, the lower priced house is paid off. The buyer then sells that house, buys a $200K house, (financing the other 100K), continues with the same payment, and after about 15 years and one move, owns a $200K house outright.  Had the buyer directly purchased the $200K house, the buyer would still owe over $100K and still be facing 15 years of the payment on the original $200K mortgage!!

Personally, I financed about what I make in a year.  I devoted all of my summer money toward paying down the principal.  After 8 years or so, I had paid off my house.  Since then I have devoted what had been my house payment toward bumping up my retirement contributions.  Of Before the 08/09 financial collapse, i was chastised as many thought that the best idea was to not pay off the mortgage, or even to cash out any equity that you had to invest in the stock market.  After , the financial collapse of 08/09 hit and many people lost 1/2 of their stock equity, I didnt hear much about that.

The bottom line is that debt adds risk.  (look Hamada equation in an intermediate finance book for the math).  I still invested heavily in my retirement, but I dumped all of my extra money toward paying off the mortgage, so I didnt forsake retirement savings.

So as you asked, my advice, is and has been, finance as little as you can get away with on a 15 year mortgage for no more than 25% of your take home pay, and dump your extra money toward paying it off faster.

Oh, and on a related topic, NEVER depend on your summer money to make ends meet. Summer money is ALWAYS extra.  It is too easily cut because enrollment is down, administration cuts summer wages, a new admincritter (AKA "a$$hole) decides that someone else should teach that/those classes, or as mine have done in my college (not the university, only the college Im in) the dean sets an arbitrary lower limit on the number of classes one can teach (my college faculty are limited to 2 classes, but the university limit is 4 and all of the other classes use that as the limit).  The bottom line is that you do not want to be in a position to depend on what  can be changed at the whim of an admincritter.

Congratulations on your offer.  I sincerely hope that it ends up being a great decision for you (as only time will tell)!

[Puget]

So as you asked, my advice, is and has been, finance as little as you can get away with on a 15 year mortgage for no more than 25% of your take home pay, and dump your extra money toward paying it off faster.

Ha, well, I'm sure this is great advice in lower cost markets. I take the spirit of your advice, and wish it could be applied here, but no such luck.

Here it would mean no one would ever buy a house. Which wouldn't actually be a good idea considering that rent on a one bedroom is more than my mortgage payment on this house would be. I'm sure that defies some law of economics, but that's the reality here.

Without getting too geographically specific, we'll just say this area falls in the top 10 highest priced housing markets in the country. Every year there are more people and few additional places for them to live. In this market 100k would get you about  1/3 of a very small and run down condo.  And this is considered one of the lower cost suburbs.

That said, it's a small house at the most reasonable price I'm likely to ever find around here, and I'll be able to put 20% down with a 30-year fixed rate.

[professor_pat]

Puget, I don't have any real advice for you, just congratulations on finding a reasonable house in the market you describe!

[Antiphon1]

Congrats, Puget! 

No real advice - except - until you sign the contract, you are only engaged to the house.  No shame in walking away from a bad deal.  It's harder to sell a bad house than ditch a crazy ex. 

[spork]

Congratulations on the house! If someone wants to start a "selling a house" thread, I'd be happy to contribute to that, too.

The smaller the house, the less expensive it will be to own and the less time/effort/money it will take to keep clean. And generally the more its value will be increased by the larger properties on the street.

How resilient is the house's location and the community that it is in to climate change-induced events? There are entire swaths of the country where I would not buy a house unless it was significantly elevated above ground level.

[backatit]

Yes, if anyone wants to buy a house in a coastal area prone to natural disasters (HUGE house, great if you have more than 4 kids, which we USED to, but they've all aged out), 20 minutes from the beach, we'd be happy to trade for one in a less hurricane-prone area...We've already taken one extreme hit and had to completely rebuild. We are planning on selling in the near future and relocating further inland...House has appreciated a lot, but is a LOT of house to repair and keep clean.

[dr_codex]

As some of you may recall, I recently started a "what do you wish you knew when selling a house for the first time". But that was in another forum, and besides, that place is dead. (Well, near-death.)

My update, and then my 2 cents.

We are in contract both selling and buying. Inspections turned up lots of stuff (for the new home; I don't know what they flagged at current place, but it cannot have been huge). Much hand-wringing by us about things not covered by paperwork, but nobody else seems fussed -- inspectors, banks, or lawyers -- so apparently it's nothing to worry about. We're still waiting on our appraisal, but that should be any day now. Who knows when the actual closing date will be ... it's a bit of a black box, which is a little tricky when you have small children.

Like you, Puget, 25% of our combined take-home salary wouldn't buy a piece of raw land around these parts, let alone any kind of home. And the rental market is similar. So, we went 30 year, about 30% down. I had hoped for a much shorter mortgage, but there was no way to do it. I'll try to compensate by kicking more into retirement, on the assumption that I'll make more in a tax shelter than we'll be paying out in mortgage interest.

Some things I learned from my two iterations:

1. You never know what people will love. My spouse really dislikes our current house. She was doubtful at the start, and the feelings never went away. But the people who bought it really adore it, even though they're going to undo almost everything that we put into it.

2. The fundamentals (school district, access to amenities, taxes, and square footage) almost never change. In our case, these meant that we sold the place within days. We bought near the market bottom almost a decade ago, but the people buying it now clearly think that they're also getting a great deal.

3. Local expertise will save you a lot of time. Realtors, lawyers, and bankers who know the drill will make it all go faster. You might save money without them, depending upon where you live, but you will have to put in the hours.

4. Head for the high ground. We are in a coastal area, and moving to a town that is already experiencing some flooding. You'll find our house right next to the water tower, on the highest hill. This isn't just because I teach students about rising sea levels, although that's always near the front of my mind; it's increasingly difficult to get home insurance for properties in FEMA flood areas.

5. Think about what kinds of work you might want to hire people to do. Sure, I could put up sheetrock, but I'm pretty sloppy and there's a lot of waste, since I don't do it all the time. If you ask around, you might be surprised at how affordable some jobs are, especially if you aren't paying contractor prices at the box stores. You'll get mountains of mail from companies and contractors of all stripes as soon as you move; keep some of it for at least a year, as you settle in. Obviously, if you're handy and/or really enjoying home repair, go to it.

Good luck!

dc

[brixton]

Don't feel pressure by the "multiple offer" mantra from your (and the seller's) realtor.  Decide how much you'll pay and make that offer.  It can be less than the ask price, or more.  But keep in mind that in hot markets, like the ones that you and I live in, always talk about these multiple offers, but if you obsess in that direction, you'll spend too much.

I bought in a west coast market that was hot with multiple offers.  I went in and made offers that were less than the asking price, and drove my realtor crazy.  Many turned me down.  One accepted.  I'm happy with what I got.  If I offered more than I wanted to pay just to get the house, I probably wouldn't have been happy.

[polly_mer]

Don't feel pressure by the "multiple offer" mantra from your (and the seller's) realtor.  Decide how much you'll pay and make that offer.  It can be less than the ask price, or more.  But keep in mind that in hot markets, like the ones that you and I live in, always talk about these multiple offers, but if you obsess in that direction, you'll spend too much.

Another possibility is after the house is truly appraised, the banks all agree on what the maximum lend value will be and, thus, you cannot outbid anyone on the house.  We bought our current house that way with the other bidders unable to actually get loans for the value they bid and the realtor having to point out that reality.

[Puget]

Thanks everyone for your words of wisdom and encouragement-- I'm now under contingent contract on the house!

I really did not think I was going to get it, but some combo of them not wanting to sell to investors, my realtor knowing the listing agent his whole life and convincing him we weren't going to mess them around, and being able to close quickly (it's an estate sale) did the trick-- they didn't even counter offer. My realtor was as stunned as I was that we pulled this off. Next steps, inspection and mortgage (shouldn't be a problem, pre-approved for quite a bit over what I need for this one). It won't really feel real until those are done.

To address a few points--

Not in a flood prone area thankfully (I should probably clarify that my moniker refers to my natal waters, not current location).

It is indeed a small house (1200 sq ft) surrounded by much larger and more expensive houses. The location is great, close to everything but on a quiet neighborhood street.

I don't really have any worry about it loosing value given this market-- I'm sure what the investors who they didn't want to sell to were planning to do was update the decor (very 70's currently) and flip it for considerably more. I can do some updates gradually over time as I save for them.

Given how good a deal this is compared to comparable nearby houses, appraisal should not be a problem at all.

[mamselle]

Whoo-hoo!

Yea!!

We'll have to have a moving-in party for you, assuming all goes well.

M.

[pgher]

Ah, the fun of new home ownership. Right after we moved into our first house, a pipe broke for an outdoor spigot. Fixing it was easy, but required three trips to Home Depot: one to buy a shovel to find the problem, one to buy a wrench to take it apart so we would know what to get, and one to get the parts.

We are right now in the process of building a house. My wife is disabled, so we're making an accessible house. Of course there are issues. One is that the new house right next to our lot used our sewer lateral, so he (or the developer, or someone who's not me) will have to put in a new one for us. Another is that even though there is NO WAY for a flood, we are right on a creek (more of a drainage ditch) so we have to build higher than practically necessary. Oh well--it's only money.