Ok, so I can’t take living in Seattle anymore due to the commute and the hobos. Any “you must do this, fucker” home buying or mortgage recommendations?
Non-obvious stuff I’ve got so far:
Realtors are always acting 100% in the seller’s interest, so you need to get a buyer’s agent if you don’t want to get ripped off (or handle it all yourself).
Banks charge a lending premium because of their perceived reliability (!)
FHA 3% down mortgages with PMI: good or bad?
Mortgage brokers: probably good!
Avoid online comparison places, almost all of brokers there have tons of hidden fees and closing costs, and they just resell your loan. Local banks often have some good offers right now, if you have an accountant, ask for suggestions on local banks.
Remember to take into account taxes and insurance, everyones insurance took a hit because of 9/11. I pay almost twice what i used to (other issues in play for all the reasons, but still).
And the number one thing of home ownership at least for me - learn to hate water.
Chet
Hmm, ok. What’s this about water?
I disagree with Chet about online comparison sites. You do need to be sure to nail down the fees, which usually requires a call to the actual creditor. But I found it a good way to get the phone numbers and initial terms of five places that I could compare. And all of them were better than USAA and my own bank (I did this for my refi–for my initial mortgage, I went with someone recommended by my real estate agent, which I think was a not-very-good idea in retrospect). But he’s right that they will stack in hidden fees to try and keep their rate+points down. Always ask them what it will cost to close the loan and what things you will have to pay for other than the closing (like an inspection).
For loan type, I’d recommend you check out decent ARMs (like a 5/1), unless you plan on keeping your house a long time. If this is going to be a starter house that you’ll vacate in 6-8 years (like most peoples’ first house), an ARM is probably better. You’re probably going to end up making a spreadsheet to compare different loans (5 lenders x 5 loan options from each = you need a spreadsheet).
For actual house-hunting, I’d recommend buying a book. I bought “Home Buying for Dummies” and it was pretty decent for getting a total newbie up to speed. See if you can get a referral for an agent. If not, don’t be afraid to switch agents if you don’t like the first one you try.
Biggest tip #1: buy a house that is a stretch for you, assuming you have a normal job that involves raises and/or promotions on a regular basis. Something you have to stretch for now is going to be nice and a lot easier to afford in two years. Something you can afford without sweating right now is going to be uncomfortably small / bad area / something else you don’t like in two years. Either way, you’ve got 4-5 more years before you move.
Biggest tip #2 (hmm): don’t trust your real estate agent in the home stretch. They’re technically required to fight for your best interests all the time. In reality, they want to guarantee a sale goes through because otherwise they get no commission. Once you’re bidding on a house, they don’t want you to potentially fuck it up. They’ll tell you to bid more, and not to insist that problems with the house get fixed. “Just claim it on your home warranty,” they’ll tell you. Don’t listen to them. In the final stretch, you’re pretty much on your own. It’s pretty stressful, or at least it was for me.
Anyway, congratulations! I found house-hunting pretty stressful and a big pain in the ass, but it was also kind of fun and I really like having my own place. Judging by your posts, I think you’ll get really into it.
Just don’t back it into a concrete pylon the way you did with your last purchase…
Don’t trust your real estate agent in the home stretch. They’re technically required to fight for your best interests all the time.
I’ve been wondering about this. Even if I get one that’s explicitly, legally, looking out for my interests, the incentive model is all wrong - why the hell would I want to give them a fixed percentage of the proceeds? It only gives them an incentive for a quick, expensive sale.
WTF is wrong with the housing market, along these lines? It seems ludicrously uncompetitive at the agent level; I imagine I’d get yelled at if I called a bunch of them asking for rates up front.
Maybe I should try to negotiate a flat rate with incentive clauses based on the delta from the assessed value or something.
As to ARMs: unless the Fed intentionally creates inflation, it’s literally impossible for interest rates to go any lower. I’ve done some reading, and it does make sense that 90% of the time buyers would be better off getting an ARM, as they’re not going to be living there that long.
But:
Interest rates have nowhere to go but up.
I’m worried there’s significant risk that the financial markets are going to wake up one of these days, look at the trade deficit, look at the budget deficit, and shit themselves. I actually don’t think I’m making a bet on my personal political views here; I just think we’re headed for a fiscal trainwreck. Will high productivity mask it? Not sure…
Good for you!
Most of the tips I can think of have already been discussed. The thing about being on your own in the final stretch is right on. We had a gal who insisted we go with her inspector, who she described as, “the kind of guy who won’t blow a deal up.” I found my own guy. It was always like that with her, though. Be very selective who you work with. Don’t feel bad about working with a couple of people at the same time, just to see who you click with.
PMI is typically a bad deal, but if you can get a 3% down loan, you’ll have a lot more house options. Where are you planning on looking? How much house do you need? Any must haves? Any must not haves?
The problem with buying a house is that there are just dozens upon dozens of decions you have to make and lots to research, from all the systems in the homes to locations to financing… the list goes on and on. Good luck!
Also, I am with you on the interest rates. We’ve been in our place for 5 years and probably need to move or remodel soon, but I don’t want to give up my low fixed rate. Maybe I’ll win the lotto and be able to afford an add-on.
Looking for something as close to Microsoft as possible; I can’t fucking stand commuting. Kirkland or closer.
I know what you mean. I am about 3 miles away from Microsoft campus. It’s a quick bike ride and and even quicker car ride.
Kirkland means using the 405. Bleah. Look in Redmond or Bellevue.
Best place to get a mortgage: a not for profit credit union you belong to. You don’t still use banks, do you?
PMI is definitely a bad deal, and though sometimes you can’t avoid it (not a lot of people have 20% down these days, given the current costs of real estate), it’s worth getting rid of it as soon as possible. I think that FHA loans also come with higher than normal PMI, since they are essentially high-risk loans. My brother-in-law has an FHA loan, and pays a lot more than we do in PMI each month, even though his monthly mortgage payment is lower. Look carefully at the terms that you have to meet in order to get rid of your PMI payments, then try to fulfill those terms as soon as you can. With a regular loan, once you have 20% equity, you no longer need PMI. FHA loans may have additional terms, though.
Also, remember that you can always pay extra on your mortgage each month, and you can specify that any extra amount goes entirely towards the principle (make sure that you DO specify that, because some lenders will only do that if you tell them). That’s better than buying stock. You’d be hard-pressed to find an investment with a better return.
Assuming Chet’s experience is the same as mine: Check the flood plain maps for any prospective purchase carefully. If there’s any suggestion that flood insurance might be required by your lender, run away.
I think it’s not actually you who gives them the percentage, it’s the seller. But I agree with you about the incentive model, and I don’t get it either. The two countervailing influences are: 1) an obligation to act in the buyer’s interest, with the risk of losing your license if you don’t; and 2) need for referrals. But I just don’t see that stuff competing effectively with the money an agent makes on the sale. I very much doubt you’ll be able to negotiate your own terms, though. Especially because the seller usually pays the sales commission, so you’d have to get them (and their agent) to agree to your fee structure, which is impossible before you get an agent because you (obviously) don’t know who the seller is yet. I guess you could negotiate with the agent that they’ll get such-and-such amount, with any shortfall between that and their commission being paid by you and any excess being refunded to you. Let me know if you manage to get anyone to go for that, and I’ll hire you to renegotiate my salary at work.
Also, I think the percentage is fixed (six percent, split between the agents if there’s one for each party), so you’re right that there’s no competition in that respect. But there’s a lot of competition over who has the best listings, who is the best agent, etc. I was reasonably happy with my first choice, but most of my friends went through two or three agents before finding the one who sold them their place. That competition helps keep agents honest in the initial goings–if they’re showing you places way out of your price range, you’ll just switch agents. But once you’re far into a deal, they can pressure you more because you’ve got more invested in the process. That’s why I said you’ll be all alone in the home stretch–my agent really put on the pressure when we were in final negotiations (over the inspection) on my condo.
As to ARMs: unless the Fed intentionally creates inflation, it’s literally impossible for interest rates to go any lower.
Do a spreadsheet for your loan offers, and make sure you compare the relative costs after seven years, plugging in different assumptions about interest rates. Remember that your rate will be locked for a 5 years or so, usually quite a bit lower than the 30-year rate (I knocked 3/4% off the 30 year when I got my 5/1 refi IIRC). And the adjustments after that are capped, so you can only lose so much extra money in years 6 and 7.
Conceptually, remember that a bank has to make reasonable money on a 30 year loan even if you keep it for 30 years, so that’s priced into the rate. If you know for sure you’re not going to keep the loan 30 years, or even 10 years, you’re paying for a lot of long-term security that you will never use. Of course, an ARM is more risky, which is why it’s cheaper. Theoretically if rates go through the ceiling, you’re stuck with your ARM for more than 7 years because you can’t afford to move or refi in the new, superexpensive market, and you end up paying more than you would have paid with a fixed mortgage. But the chances of that sort of superinflation are pretty remote, in my estimation, and the cost of insuring against it is too high. And remember that net present value, and the decreasing marginal utility of wealth, both act in your favor. A dollar you save today is worth a lot more than a dollar you have to spend in seven years.
Still, it all depends on how risk-averse you are, and how you see the risks (for example, unlike you, I don’t think the financial markets are going to go berzerk in the next 6 or 7 years, so I bet accordingly).
i assume that chet hates water because it is typically included in rent, but becomes annoyingly expensive when you own a home and have to buy it on your own.
or perhaps it is all the damage water can do to a house… leaky roof, flooded basement, etc…
Biggest tip #1: buy a house that is a stretch for you, assuming you have a normal job that involves raises and/or promotions on a regular basis. Something you have to stretch for now is going to be nice and a lot easier to afford in two years. Something you can afford without sweating right now is going to be uncomfortably small / bad area / something else you don’t like in two years. Either way, you’ve got 4-5 more years before you move.
i totally disagree with that. there is nothing nicer than walking into a conversation of people complaining about bills and being able to brag about how your mortgage is only 70% of theirs.
obviously, there are tradeoffs you have to make to get a cheaper house. i live in a decent area, but it is close to slummier areas. and my local taxes are significantly higher (i pay 3% vs other nearby that pay 1%), but i figure it will take something like 20-30 years of taxes to make up for the amount i saved, vs living in a lower tax area.
unless you are planning on starting a family in your current house, something you are comfortable with now you will probably be comfortable with in 5 years. and just think of all that extra money you will have available to spend on games. or your 401k, if you are responsible like that…
totally agree on the real estate agent thing. they are way more interested in getting the deal to go through than they are interested in getting you a good deal.
You can indeed negotiate terms with your realtor. My brother did this very thing on the house he’s moving out of in a few weeks. Obviously, it depends more on the housing market, but it can be done. If you’re not selling a house you’re moving out of, it’s less of an issue (because the seller pays the commission for both sides).
There are plenty of good realtors out there if you look. Get referrals. Talk to friends/co-workers who’ve fairly recently bought/sold houses. When I last moved (4 years ago), my realtor was great. She got one buyer’s realtor pulled from the deal because he was a cock and I complained to her. She never pressured me to use a particular inspector, and didn’t push me to ignore things (I insisted on a price cut to replace the roof, and on the sell side refused to include the same because I’d just replaced the roof two years before).
We used a buyer’s broker, and they had a good way of working the commission. They took a survey of prices in the neighborhoods where you were looking, and worked out a comission ahead of time (that is, if you buy in neighborhood X, the comission will be $Y). Anything over, you make up the comission, anything less and they refund you.
We ended up getting a refund.
Also, shop around for agents. We had a really strict requirement to be within 1 1/2 miles walking distance from synagogue, and the first agent didn’t seem to get that that’s not the same thing as 2 1/2 miles as the crow flies :x
Gav
Water- it leaks from pipes or the roof, it overflows gutters, it seeps into old basements, it will find any flaw in your house. Almost everyone i know who has home problems has some kind of issue with water. We have a leaky sky light and a shower that leaked. Also had to replace the hotwater heater. Almost nothing goes wrong with houses, the walls don’t cave in, electrical doesn’t blow up - but something water, clogged toilets/sinks, backed up sewer in the basement etc - it just seems like it is always something.
And don’t forget when pricing a home, there are alot of things you need to buy once you get one. From appliances and furniture to stupid things like curtains, a hose and garden/lawn stuff etc.
Chet
See, that’s exactly what I want. Now to find someone who does it around here.
Another good thing to do depending on how much of a moving hurry you are in.
Tip 1. Find a house that is for sale and has been vacant for more than 60 days. This means the owner has already moved and is probably desperately trying to move his/her old property. You can drive some deliciously hard bargains in such a situation. Be careful to do the homework and find out why it’s been on the market for over 2 months tho.
Tip 2. Find out if your local area property assesor is tech savvy. The county property assesors office in my county has a searchable online database of every residiential property in the county including photos, assessed values, sale history (with prices), schematics, the whole 9 yards really. Makes it very easy to figure out what the average price of a home in a neighborhood should be.