house
Make Sure That Buying A House Is The Right Option For You
Doing a thorough analysis of whether home ownership is even the right choice for you before you take on a 30-year home loan can save your ass in the long run.
I highly recommend talking to your friends and family about their experiences with renting and owning. Ask them what they love and hate most about each. You’ll get awesome insights from the ones who have done both. Here’s our list. Remember everyone is different. Some people’s pros are another’s cons.
Write out your needs, concerns and desires. Think about your future and where you’ll be. What if things change? Then crunch the real math. You might be surprised by what you find out. Here’s some questions to ask yourself.
Don’t Buy A House During The Wrong Housing Climate
When it’s a sellers market, there are more buyers than there are houses available. Homes end up selling for more money because of scarcity, and buyers often get into bidding wars pushing prices up further.
The opposite is true during a buyers market. There are less buyers to the number of homes available on the market, so naturally prices need to fall to incentivize other buyers to come into the market. This is when you can get sellers to pay for closing costs and come down in price to get rid of their property.
My advice is to wait for a buyer’s market or find an undesirable house and talk them down using an itemized repair list. Though that can sometimes be tricky with all the house flippers these days.
Better Credit Gets You Better Terms
Sometimes working on improving your credit for 6+ months can save you tens of thousands of dollars on the house you purchase. Interest adds up and the more favorable terms you can get the more money you’ll save in the long run.
This is especially a good idea if you’re not in a buyer’s market.
Shop Around For The Best Mortgage Loan
Each lender has its own terms and varying flexibility to create a deal that’s right for you, so shop around. Don’t just go with the first offer you get.
If you don’t want to take the time to apply to different places, you might want to consider hiring a mortgage broker. They’ll do the term shopping for you.
Find Compatible Professionals To Work With
Some real estate agents suck. Some lending agents suck. The process of buying a house sucks in general so make sure you’re working with people you like and understand and LISTEN to what you’re looking for. Otherwise you’ll have more stress than necessary. You’re locked into your real estate agent if you sign that paper they push you to sign for 6 months.
Your Mortgage Officer Doesn’t Work For You
Don’t mistake a mortgage officer as someone who has your best interests at heart. They work for the lender and their loyalties lie first and foremost with them. That means if they make more profit from recommending you something, guess what they’re going to do.
You can either educate yourself on the aspects of needing a loan to buy a house or you can hire a mortgage broker to get you the best deal.
Keep All Correspondences
Always get things in writing. Avoid verbal and handshakes. If you do things that way, follow up the with a written correspondence that lays out what was discussed and agreed upon and do a read receipt if you can. Your credit and future is on the line. Don’t be lazy here.
It’s been my experience (and it seems things are getting worse as time goes on) that people aren’t as detail oriented and methodical as they should be. You need to be your own advocate and correct your lender if they say you didn’t give them something you did or if they contradict something they previously told you. Assuming they know what they’re doing and that you have no place in doing so will cause problems and potentially delay your closing. You’re the only one who cares about you as the highest priority. Others are in the same game and when ego gets in the way, many people won’t admit to mistakes.
Buy Less House Than You Get Approved For
When I bought my first house, the lender told me that I was approved for $300,000. I grew up in a big house and knew I didn’t want anything that big. I told them I only wanted around $100,000 home. The bank kept pushing me to go more expensive. You have to stick to your guns if this is the situation.
The second house I bought while still having the mortgage for the first was also eye opening. The lender had trouble getting me approved not because I couldn’t afford it, but because my second house wasn’t as big as my first. The only thing that allowed them to justify it was that I was going from a condo to a single family. This is asinine and perfectly lines up society’s value of expansion and excess. The system isn’t set up for you to go against the grain.
Ideally you don’t want your mortgage to be more than 33% of your take home paycheck.
Understand How PMI Works
PMI is home loan insurance that banks make you pay for if they’re lending you more than 80% of the home’s value. This covers the bank if you go into default.
Sounds alright, but you pay for it, not the bank. And that can cost you big over the lifetime of the loan. As long as you get the right kind of loan and meet the requirements to get rid of PMI.
Never Get A FHA Loan Even If It’s Your First Home Purchase
The rules have changed. First time home buyers usually get talked into or favor FHA loans because they have “added protection” and require less money down.
It’s been my experience that this is window dressing. You never want a zero down loan unless you’re going to implement my strategy to knock off huge chunks of interest by paying extra principle. FHA loans now carry PMI for the life of the loan. That can add up to tens of thousands of dollars over the life of the loan.
Conventional loans only require PMI insurance until you reach 20% equity. This is why many people recommend paying 20% down. It avoids the extra cost of PMI. There’s a better way to implement this strategy.
FHA have more strict requirements when it comes to home safety and functionality, but it also makes things a pain in the ass for sellers which can cause your offers to get turned down or extend your closing date when necessary repairs need done.
Do Not Furnish Your New House On Credit
There’s something about humans that feel the need to fill the space they have. When you buy a new house, you likely don’t have furniture to make the whole thing feel like it’s yours right out the gate.
If you’re someone who needs instant gratification, you’ll put thousands of dollars on credit to furnish your newly bought house. When you don’t pay this off right away, you end up paying a lot more in interest. That doesn’t make sense when you’ve just gone $100,000 or way more into debt.
The best way to avoid this is to buy less house than you want as stated above or slowly add pieces over time.
Location Is Just As Important As The House Itself
Not only does location matter from an experience perspective, but the type of neighborhood you’re in can affect your future self. It’s easy to know to avoid trains and landfills. But what about neighborhoods that are full of keep up with the Jones’s? This influence can suck you into following suit and depleting your wallet.
Plan To Be Surprised By Unknown Expenses In The First Few Months
Do Some Math Before Putting More Money Down
Maintenance Obligations Take Up More Time And Energy Than Expected
When you own your own home, you’re the one responsible for maintaining and fixing everything.
Be Aware Of Zoning Regulations Before Buying
Understand HOAs And If You Want One
Know What Makes Condos And Townhouses Different Than Single Family Homes
Don’t Bank On Refinancing
Unless You’re Married, Don’t Co-Buy A House
Only put one of your names on the mortgage and deed if you’re dating someone. If you want to make it even put the other person as the sole owner of your vehicles.
When and if you break up it’s so much easier to unravel ties. It’s such a nightmare to get a spiteful ex to sign off some a co owned asset like a house or car.
Older Houses Have Better Bones
real millioinairs buy older houses. They sometimes come with headaches but a lot of new construction is cheap compared to how solid older stuff is.
Have A Plan B If You Don’t End Up Staying In Your House For 10+ Years
Know Your Property Lines And Don’t Let Neighbors Encroach
Learn To Recognize Shotty Construction
Home Inspectors Aren’t As Knowledgeable As Those With Renovation Experience
Your Mortgage Payment Changes With Tax Changes
When you get a home loan the bank breaks your expected payments down. What they don’t tell you is that this number doesn’t stay the same over the life of the loan even if you get a fixed interest rate mortgage.
What they fail to tell you is that the portion that gets escrowed for taxes, may not be enough each year. This is an estimate and will depend on the actual tax rates. As your taxes increase, so does your mortgage payment. This gets reassesed at the end of each year.
They used to allow you to pay off any difference to keep your payment the same, but my mortgages now just automatically change the payment due for the first of the year. Don’t get caught off guard especially if you’ve set your mortgage to autopay.
