Now that the whirlwind of closing and moving in has finally slowed down a little, I’ve had some time to think back about the process we went through buying our first home.
I definitely learned a lot along the way. Here are some of the biggest things I wish I knew before starting this process:
- Expect to need a lot more money than you think for taxes and closing fees. Yes, we do live in one of the highest taxed states in the country (Thanks New York!) but it was still a lot more than I thought. Our mortgage payment is $600 but taxes make it $1000, so 40% of the payment is taxes! With $15,000 in the bank we thought we could afford a lot more house than we actually could. Luckily the one we loved was priced well within our budget – but at first it was a let down to go from looking at higher end gorgeous houses to mid-range, older, and not quite as nice, homes.
- Get a pre-qualification before starting to look at homes online. This ties into the first one of needing more money than you first think. We sat down with a banker and were pre-qualified for a loan with just bank statements and a credit check. It didn’t take long, and you weren’t locked in to using that bank later one. She ran the numbers for the maximum we could afford to give us an idea of what we could expect if we were on the upper end of our budget. The banker was also able to give us a rough estimate of closing fees and taxes in several towns around Rochester which gave us a guideline on how much we would need on hand at closing. Even though a pre-qual is just an estimate, it is a good starting point when you start your search.
- Don’t be surprised if you are disappointed when you view a home in person. We were pretty discriminating with the type of home we wanted and ruled a lot out online, however when we went to see homes that looked awesome in photos we were often let down. Homes wouldn’t show a whole top floor in the pictures and it would be really outdated and worn out, for example. Or photos showed the owners stuff and in reality the house was stripped clean and in terrible condition inside. Or the house itself was awesome but was backed up to a chemical paint factory and a train tracks. We looked at countless places that we got very excited about but that turned out to be duds.
- Remember that a house is a huge purchase, so don’t get frustrated when you don’t find your dream home first week. The constant high and low of expectations is draining on your emotions. Our home search was not as long as most, and yet we still felt discouraged and stressed out about it. But then you find one house that strikes you as “pretty darn cool” and you get it. The search process lets you get a feel for what you really like and value, and gives you the insight to know when you’ve found one you want enough to snap it up.
- Don’t lose faith when that awesome place you went to look at sold before you could put an offer in. Yes, we are in a “down” economy, but up here it certainly doesn’t seem to be the case – at least in housing. We were actually sitting in the driveway of a house waiting for a showing when we got a call saying an offer had been made and accepted… and that house was just listed the morning before! There were a few really awesome homes that sold before we could even blink. Almost all the Realtors up here said that after the $8,000 tax credit came out well priced houses were selling like hot cakes. In fact, the home we ended up buying had two offers (including our own) within 12 hours of being listed! We ended up sniping someone else out, and I feel bad about that, but not too bad.
- If you don’t use a buyers agent don’t expect to negotiate a lower price or expect sellers agents to lower their commissions. When you sell a home you factor in 6% in agents commissions, normally 3% for your person and 3% for the buyers agent. If the buyer isn’t using an agent the full 6% goes your realtor unless they agree to take less. After lots of reading and discussions we ended up buying a home without using an agent. The first house we made an offer on this was no benefit when we were negotiating; the sellers agent did not offer to reduce her commission at all, which gave us no additional leverage. That deal ultimately fell through because we couldn’t agree on a price, and honestly I am glad now because we would not have been as happy in that home. However, not having an agent did help with the home we ended up purchasing; the sellers agent offered to reduce his commission to make our offer more attractive than the other one since he still made more with us even if it wasn’t a full 6%. This is what ultimately let us get the contract. So it depends on the situation and the agent, but don’t go into the transaction expecting it to work in your favor – it may not.
- Expect the bank to take their time and really investigate the mortgage, but also expect to have more options than the media would lead you to believe are available. We didn’t have a huge percentage down for our house after factoring in all the closing fees and taxes. (about 8%) but we still qualified for both a conventional and FHA style loan, which surprised me – I thought we would need at least 10%, but the limits are actually much lower: 5% for conventional and 3.5% for FHA. And if you are a veteran you could still get away with 0% down earlier this year. However, before we got the loan we had to go through a rigorous process of verifications including providing bank statements, pay stubs, and allowing a verbal verification of employment. This is no surprise since lending to anyone with a pulse wrecked havoc when people couldn’t make their payments.
- Stay focused and try to avoid getting overwhelmed with projects you want to start. This one is a big one, and one of the hardest. We moved into an older house (1968) and knew it would need a little bit of work, but are finding so many things we want to do; it’s easy to get sidetracked jumping from one project to the next. We want to change some of the plants in the garden and start growing vegetables, we want to reseal the garage floor, we want to build stairs to the deck from the main level, we want to thin out the tree cover to get more direct sunlight… the list goes on. Then there are the small things like the bathroom sink draining slowing, the screen door squeaking, or the light bulb in the garage burning out. This is on top of moving in all our stuff and unpacking. It’s very easy to get caught up in the projects and get overwhelmed with it all, so stay focused, make a list, prioritize, and above all don’t get so eager to get stuff done that you end up going into debt or doing a shoddy job.
- Label stuff when you pack it! This is also a big one, and something we only did with a few things. We started packing well in advance of closing, and were diligent about putting like items together with clearly labelled boxes. But when the closing actually happened we still had about half of our stuff out and were scrambling to get it all loaded up. The last few things we packed were not labelled and were just stuffed in any available container. This was alright, but it definitely made unloading and unpacking more difficult. There were many: “do you know wher
e X is?” conversations as we were unpacking different rooms.
- Don’t be surprised by offers of furniture, pictures, and other stuff from friends and family – and don’t be afraid to say No. We didn’t have a lot of stuff to move since we only had a 900 square foot 1 bedroom apartment, and we will eventually end up having to find or buy more furniture for a few rooms. However, when family found out we were moving it seemed as if we had endless offers of stuff. Everyone seemed to use our moving as an excuse to finally get rid of their old furniture and clean out their garages. If you like something, and really would use it, the go ahead and take them up on their offers – but don’t be afraid to say no if you don’t want the old couch that’s been collecting dust in your uncle’s attic for 15 years. We have gotten a lot of nice things through family and friends, but we’ve also turned down a lot of nice (and some not so nice) things that don’t fit our style or our home. It’s hard, especially if you are close to the people, but the last thing you need is a bunch of new clutter when you are getting settled.
If you’ve moved recently or are a first time home buyer, what has your experience been? Is there anything you wish you before buying your home?
No related posts.
{ 13 comments… read them below or add one }
I'm at the pre-approval stage right now. DId you guys just get the one quote or did you go to a few different lenders to see what they could get you?
One thing I wished I knew before I placed a bid was the interest rate on the mortgage. We were pre-approved for 4.85% but the housing searched took 2 months. We assumed the rate was going to be close to 4.85%… but at the lender's office, we found out that the rates went up quick and we had no choice but to get a 5.75% rate.
Rates are starting to come down… our lender is going to float down the rate if rates go to 5.4% before closing which is about 2 weeks from now.
We went to just one bank at first and got a general pre-qualification, not the full pre-approval, when we started the search process. The pre-qual is faster and less involved but still gave us a good estimate of what we could afford. After we found a house we wanted to bid on we called several banks to get quotes for the best interest rates and lowest fees. Finally after choosing a bank we went through the full pre-approval process and eventually got the mortgage.
Surprisingly the bank we first went to turned out to be the best, and we ended using them.
Edit: As Glenn said in his comment, interest rates are changing very quickly, so a rate quote you get now might be totally off when you find the house you want. Just use the pre-qual or pre-approval as a guideline and then get real quotes when you are set to take the next step and have found a house you want to buy.
We were lucky enough to snag it when the rates were at the bottom, which was lower than what we were first pre-approved for. Lately rates have been changing daily, and it's hard to predict, so if you stumble on a good rate make sure to lock it in if you can.
We got a rate of 4.625% when we filled out the paperwork and they were able to lock that in for 60 days while the bank processed everything. Our closing date was right at the end of that period but we were able to keep the original low rate. Anything below 6% is still historically low.
Best of luck getting with the closing!
Les,
Do you have any insights on the percentage of the list price you should make your offer at these market conditions? I also live in the Rochester, NY area.
And what about Radon? What's your take on that? The house we're buying came back 4.5. Mitigation is being done by the seller now.
thanks!
Glenn,
I only can go off my experiences – so this is a limited view, and a long comment.
We wanted to be close to the water so were focusing mainly on the Irondequoit area, things may be different in other towns and neighborhoods.
The first house we looked at we went in with a low-ball offer, about 15% below asking price. We decided to offer this because our library book research said to expect a lot of back and forth dealing, and we didn't want to come in at too high a starting point. We also figured that "in this economy" it was a buyers market and we would have an advantage. We actually almost went in 20% below list, but decided that was too much. According to their agent "the sellers were offended" and countered with 5% off. We countered again about 10% below the original price and were rejected when we refused to go much higher. The house was on the market about 2 months and eventually sold for 97% of the original asking price, $160,000.
For the house we bought, we were the second offer by a few hours. As we were doing our walk through the agent said another offer was being written, which it was. The original offer was put in less than 12 hours after it was listed and was for full list price. To counter we came in at list price as well, and had our offer in the next day. The first offer was rejected after ours came in because the agent reduced his 6% (double) commission to 5%, letting the sellers keep more money. We were a little rushed in this process, but knew we really liked the house so felt alright about it.
If you have been looking at a house for a while (a few weeks) and see that it hasn't sold yet then you can go in with a low offer, maybe 10% off, but be careful because many homes are selling very quickly. In hindsight I think the lowball offer of 15% off (which was about $20,000) was too low. If a house is newly listed and you want it, go in at a higher price – either asking or just a little off. Almost all the homes we were considering, even the ones on the market for a long time, have been sold now – and we only started looking in March.
All the Realtors we spoke to said that houses below $200,000 here are selling very quickly, and also said that the Rochester market never really slowed the way the national market did. According to them, we stopped growing as quickly (but we never grew as fast in the first place) and weren't hit as badly with the recession. (Honestly, we had already been through our own recession when Kodak and Xerox made all those cuts – so there was less to lose this time around).
Did you have a similar experience when you were looking? Which part of Rochester were you looking to buy? What price range is your home? We were focusing on $180,000 and under, although realistically more like $150ish, and like I said wanted to be close to the lake.
As for Radon… We didn't get it officially tested by the inspector, and probably should have – but we were in a time crunch. We are going to do the at home test soon (thanks for the reminder) and will take care of it if it's here. Proper mitigation doesn't seem too difficult, but you should watch it if you know you have a history of higher concentrations. I don't think it would be a deal-breaker for me, but I would definitely take care of it quickly.
Good list of ideas! One thing first-time buyers might want to be aware of is re-upping pre-approvals too many times. My husband and I looked at houses for a year (man did we get tired of looking at houses almost every weekend!), and pre-approvals are only good for usually three months. We obtained the first about six months before we started looking, a second prior to starting the process, and renewed it after the second expired.
We had a contract fall through, so we let the pre-approval lapse for a month or two while we took a break, and got pre-approved again. This was all well and good until we went to go finalize the mortgage on the house that we ended up buying. Those count as hard pulls on your credit report, and combined with rechecking our credit after paying down some debt, we ended up with a slightly lower scores and a higher interest rate. Mind boggling to me, when all those credit report pulls were directly related to us trying to buy a house.
Finding out what a bank thinks you can afford is a great idea, but if your financial situation doesn't change throughout a long buying process, try to keep credit report pulls to a minimum. A pre-certification may not be an actual hard pull on your credit, I'm not sure.
Thanks for the detailed reply!
I didn't know anything about bidding for a house when we signed the contract. It was just me, my wife and our broker. We started about 3% below list price. Our broker told us that there are a few families interested in the house also and that if we really like the house, we should bid 2% below list price. There really was 3 other families who bid on the house that same day… we won. But I wasn't sure if I overpaid given the market conditions.
Reading articles on the net, some says start with 20% below, others say 5-15% below. But they were all in the NYC/NJ area. I wasn't sure if this is also true for Rochester. My wife said, one of her officemate offered $5,000 below LP on a house and the owner got offended. The house we got was listed for $255,000 and they accepted our offer of $250,000 with no negotiations. After reading your reply, I feel better that maybe I just overpaid a little bit… but not a lot.
Everything is going smoothly. We're not really feeling any stress. We're anxious to move in.
We'll I shouldn't say it's stress free. Radon is something we haven't heard of before. I lived in NJ for 5 years and I didn't hear about it even though NJ has high Radon also. When Radon returned 4.5 pci/l, I was turned off. My wife told me it's nothing. Her officemates told her that it's common here in NYS and that you only need to install a mitigation system for ~$1,000. Since we're buying the house, we asked the seller to have the mitigation system installed at his cost. I'm still a little bit leary on Radon even though my research tells me that there's nothing to worry about if you do the mitigation. But the more I read, the more I'm assured. EPA has a good website dedicated to Radon. There are also other blogs that talk about this.
Gosh things the things I wish I knew, I suppose all learning experiences make you wiser…. I do like your list, I've got some additional things I wish I knew but please, anything I say is just my opinion, I'm no expert just a first-time homebuyer. Here is my short book of my thoughts having just gone through a similar experience. Please excuse the verbal diarrhea.
Number one for me would be to be patient, something I'm not very adept at. It took us a good 6 months to find our home, actually in large part because our agent was really looking out for us and wouldn't let put in a bid for more than she thought the house was worth, or in a neighborhood where she thought we would have trouble reselling, or the beautiful house just smack in the middle of Victor's toxic waste plume. Not being married and going into a huge joint investment, being able to re-sell the house if needed was a high priority for us and we were lucky to have an honest agent who realized this. And yes, looking in a similar price range and area there sure were some houses that looked like they really were close to becoming condemned, I agree 100% about how deceiving photos can be on the MLS. Be ready to be disappointed, and don't get too excited about a place without walking though (though sometimes it's hard not to.)
Number 2 is hire movers. (You guys obviously learned this already) It's worth it. Every penny. For some reason I thought that we could save money and just move everything ourselves. Well, 2 weeks after purchase and about 8 zillion trips we finally have (almost) everything moved over and in disarray everywhere. It's been a rough 2 weeks. The dogs have been cranky (no good walks), we've been cranky (again, no good walks). The cat doesn't really get cranky, she's pretty cool. Finally we're starting to see the light at the end of the tunnel.
Number 3 You can not compare a $125,000 house to a $150,000 house. They are in completely different catagories. We were definitely not willing to compromise too much on the price in this economy and were willing to only buy a house (at this point in time) that either one of us could make the mortgage payments in the case that one of us lost our source of income. Part of this was because one of us works for a very large automobile company that recently went bankrupt (hmm) and job security has not exactly been high.
Number 4. Be willing to compromise. Just a little. Some might say that you shouldn't compromise at all, but this is a starter home for us; one day we will build our own home to our exact specifications, but right now we were absolutely not willing to compromise on price, and so some things could just not be perfect. Our compromises in this house were 1. Garage size (yes my adorable boyfriend will have to settle for a 2 car garage-sized workshop instead of a house sized garage. If it were up to him alone, I think we would be living in a hole in a ground with a house-sized garage workshop.) On the plus size he gets to walk to work across the street while my compromise was the commute which is about double what I was doing previously. On my plus side I no longer have to come home at lunch because someone else can now walk home to feed and walk the doggies. After consideration, these are reasonable compromises for both of us right now.
Number 5: Use craigslist. It is awesome. Yesterday, I bought a teeny tiny corner sink for the teeny tiny master bedroom's bathroom which is strangely lacking one for $10 on craigslist. Needing such a small sink the cheapest I could have bought new (after extensive internet searching) would have been $150 or greater, but instead I got a high-quality one at a fraction of the cost. I strongly agree with your advice of one project at a time, and know we are going to have to set a strict budget to control ourselves. It is so exciting to have a house of our own and we have so many ideas that we want to do them all now. Again, it is hard to be patient. One thing that we are trying to do aside from doing just one project at a time is just keeping an eye out for parts of projects that we need so that we can secure raw materials paying discounted or used prices instead of buying everything new at full price when we get to that project (as you can see with the sink which is not #1 priority. Craigslist is fantastic for this. One word of caution by my real-estate agent is to be careful how much money you put into a new house, because if it is a starter home you don't want to invest more than you can get back. Research much your home would go for if it was in perfect condition and try really hard not to exceed the difference between this amount and the amount you paid if you can. Also keep tract of receipts of any home improvements as they can be tax deductible when you sell your home. It is also great for selling all the extra appliances and what-have-you that you no longer need because the house you bought came with all the appliances already. Also, you can profit from the generosity of your un-needed friends/family old furniture offers by telling them that although you don't need it you can sell the items for them if they give you 20% of the sell-price. Then you can use that money to fix up your home.
Number 6: Get ready for lots of congratulations. I don't really feel like I should be congratulated. I've just gotten into more debt than I've ever been in my life. But it's rude to tell people to wait to congratulate you until you've paid off you mortgage and that really the bank owns your house. Just smile and say thanks. I suppose really the way to do things is to save up enough money to buy the house in full and not have to deal with a mortgage at all. (which is kind of like paying rent) Although, this seemed like a good idea to us at first, we were in a strange situation where our rent was so high (it's hard to find dog-friendly housing sometimes) that by buying a house our combined mortgage,taxes and insurance will be about $300 less a month than our rent. When we realized this we started looking and coupled with Obama's incentive to basically more than cover closing costs (not incl. down payment) well, we just decided that was enough incentive. We can use the extra money not to pay our mortgage off early.
and get our deserved congratulations.
I can't say I shared your experience with the the closing costs except when we were first given the original good faith estimate. It seems everyone needs their share of your house purchase. I guess that's where the stimulus money helps out a lot, because closing costs sure wiped out our emergency fund. Our mortgage lender gave actually gave us a quote about $1000 above what our actual closing costs were, so it was kind of like a bonus as closing.
I would second your advice about not mourning your lost opportunities and know the good ones get snatched up really quick so you need to be ready to jump in at a moments notice. We lost 2 houses. The first was absoultely perfect, except the price which very reasonable value-wise but was just a tad out of our price range. In hindsight I'm glad we didn't compromise because we would have higher monthly payments for oh… the next 30 years. It sure was a nice house though. The second was a house that we didn't realize was over-priced but our agent sure did. She had us offer $20,000 below the asking price (what the house was probably really worth market-value) and our sellers were so offended, they didn't respond at all. It was upsetting at the time but in hindsight I suppose everything happens for a reason and there are many reasons why the house we eventually found was a much better value and fit.
I did like having a buying agent, it was great to be able to use her expertise of the housing market and neighborhood's in this area (although it appears that it quite worked in your favor to not have one.) I do know people in this area that have found great deals not having an agent, but generally I think at least as a buyer, it doesn't cost you directly anything and it is generally in your favor to have someone in the field on your side especially if you aren't sure how to "calculate" market value of a home. That being said, it is very very important to find an honest, hard-working agent which is something that can be difficult if you are very trusting. Always do your own research too. The house I mentioned previously that my parents bought in Ithaca, NY had a terrible buyers agent involved (and yes, not having bought many houses in their life, didn't do their job to learn some of the basic rules of thumb.) I think they were fortunate to end up not overpaying for the house anyway (mostly because of dumb luck, against the agents advice they lowballed an offer that was accepted, because the owner had already moved across the country and having health issues, I think just wanted to be done with it.) On the other hand, they will have a bear of a time re-selling this property; however, as it has no garage, no storage space and only has 2 bedrooms, all discouraging points in the mind of most buyers, which although you may consider common sense… they bought the house for me and my brother to live in during college and weren't so important to us) On that same note, I have a friend in this area that bought a house, encouraged by her agent that all it needed was a little fixing up, that basically needs to be completely gutted, an endvor that not only can she not afford, it would never sell for an amount that would make up this cost. Be very wary of your agents advice, don't sign anything that commits you to one agent and shop around for one that you think is honest.
I have to disagree with you guys about the radon issue myself. First of all, an already mitigated house is probably a better find than a low one in this area, because at least you know there is no radon anymore. There is a ton of radon in the Rochester area and so I would always, always check probably anywhere in NY. The house my parents bought in Ithaca was above the range and it was expensive for the owner to mitigate and therefore well worth the $100 test for peace of mind before you spend 100,000 + on a purchase. In the house we just bought, it was absolutely necessary. Not all houses are easy to mitigate and the house we just bought with a dirt crawl space basement would have cost many thousand to mitigate if possible at all. We would have probably walked away if the Radon level was anywhere near the legal level, because again, it is hard to resell a house with Radon (somehow people hear the word cancer and shy away
However; if you are planning to live in the house forever, it may not be as important. I hear (from my agent) the new deal-breaker fad is mold and mildew so I'd consider checking for this as well (although we opted not to… maybe with some reservations)
All right I think that's enough for now, sorry for the long post but hopefully my experiences can help someone going though this process.
By the way, I loved your bread recipe and make it all the time now. Thanks!
Wow, thanks for the opinions! I love when people share their own experiences too. And I'm glad you enjoy the bread recipe.
Now on to detailed replies:
I, like Glenn, didn't know what Radon was before starting my home search, and I do wish we had done a test earlier. We have the home test collecting samples now, and I am pretty sure it will come back very high (based on the age and location of the home, and other research) – so I am hoping it isn't too much to mitigate.
Craigslist is awesome, I agree. And so are antique shops. We just went to "the Bloomfield Antique Mile" and found a very nice kitchen table set for $250, including 6 chairs and an extension. If you go to the retail outlets you can easily spend hundreds more than that on just a table! Craigslist also had some great deals, but nothing (recently) really fit our homes and needs. Another great resource for recycled products is recycle.net – although they have more industrial stuff. We are looking there for wooden beams to make a raised bed garden.
I agree on the "be willing to compromise" suggestion. In the house we compromised sunshine all day for an awesome wooded back yard. We also switched commutes, so I feel like I compromised for a longer (25 minute) drive while Ryan got a "deal" and has only 10 minutes now.
I also agree on the $150,000 vs. $125,000 difference in type of house. There's another difference around $170,000 too. We spent $125,000 and got a house that needed a lot of minor work and is pretty small – but we wanted a small place, and the location was great, and the things that "needed" to be fixed are minor. We really wanted to be able to pay the mortgage with only one income, so also were not willing to compromise much on price.
Very good suggestions – I found myself agreeing with almost all of them and remembering the same things.