April 6th, 2006 |
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Aubrey and I are in the process of buying a house. So, here's the setup. This is going to be our first home and we're super excited. We're new to the process but we're getting a lot of help and advice from friends and family. There's just so much about which one needs to be aware.
So I figured that since it's taking up a lot of our time lately and I haven't been able to devote the attention to fun new WAREHOUSE articles that I'd like to, I might as well make buying a house an article so you guys can share in the...fun. Or a series of articles, really. That way I can keep all you guys in the loop plus offer some advice to other people who are going to be looking for first homes. Also I get to solicit advice from those of you who know some great tips or have the power of hindsight. Muhaha.
Now I know there are hundreds - thousands! - of websites out there focusing on real estate tips, tricks, etc. I'm just offering up my personal experience, and hopefully some of yours too!
If you have any great money saving or stress-reducing tips that helped you when you were house hunting, send them my way! Anything you knew all along, or something you wish you had known at the time...I'd love to hear them!
Here are the basic steps we figure we'd be taking:
1) Figure out our resources and spending
2) Extrapolate what we can spend on a new house
3) Get pre-approved for a mortgage
4) Find a buyer's agent
5) Find a house (this one's a biggie!)
6) Get house inspected and Make an offer
7) Haggle?
8) Get mortgage, closing costs, good faith money, etc
9) Move in!
As of yesterday afternoon, we've completed step 3.
Step One: Figuring Out our Resources and Spending
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As elementary as it may seem, it turns out a lot of people are pretty stupid when it comes to money. There's no real use in bandying around a more delicate term. If you can't afford it, don't buy it. People don't seem to understand this.
A lot of people hedge their bets on what they think they ought to be earning a few years down the road. Problem is...that doesn't always happen.
Right now we're both in steady and stable jobs, salaried, with a fair amount of job security. So our base income is pretty easily calculated. I also do the occasional freelance work on the side. The money that theWAREHOUSE generates, however, is generally funneled right back in to webhosting and funding more articles...and skin grafts for the articles dealing with fire.
Download calculator.xls - Download a Microsoft Excel spreadsheet that can help you figure out where you're standing (screenshot). It's not perfect by a long shot but it helped us take a good look at our income and expenses. It's at least organized and flexible. Go ahead and change the fields to suit your needs. I put sample information in the columns so you can see how it breaks out.
Step Two: Extrapolate what we can Spend on a New House
It's pretty simple, really. It seems to me that the most important general consideration you need to understand is this:
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Now don't spend too long looking at that. It's not remotely accurate for a real formula. All I'm saying is to use what you're currently paying as a gauge to see what you can afford. If you have to really carefully watch your finances to be able to pay rent each month you sure as heck cannot afford a house whose mortgage is more than your rent is now! Also, don't forget property taxes, which can easily add a few hundred dollars per month to the mortgage.
Long story short, take stock of your savings, your spending, and any looming future purchases. For example, Aubrey and I don't have lavish lifestyles and live well below our means...so we've been able to store up a nice bit of cash to help with a downpayment. Additionally we're both going to be needing new cars in the next few years but we're both completely happy with buying affordable used cars...so it's not that big of a concern (compared to the knuckleheads who only buy new cars).
If you can afford it long term, you can consider it. if you can't afford it long term...don't waste your time (and money!).
Step Three: Getting Pre-Approved for a Mortgage
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Now we needed to get preapproved for out mortgage. This is something you need to do before most real estate agents will take you seriously. My in-laws, who had considerable financial backing, were basically laughed away by the first agent to whom they went simply because they weren't pre-approved for a mortgage.
We ended up using Countrywide because of a few personal recommendations from friends. The woman we met with was incredibly friendly and very knowledgeable. We tried contacting Bank of America but couldn't even get to a real person! The first time I called I couldn't get to an operator. The second time I called I left a voicemail message with some dude but he never got back to us. Bank of America mortgage lender John, if you're reading this, you screwed up buddy. No commission for you!
Why Countrywide and Bank of America? They were the two agencies in our area that can handle SONYMA loans. SONYMA (State of New York Mortgage Assistance) is a great program that everyone in New York ought to investigate. I'm sure other states have comparable programs, so check it out. We were able to qualify for a mortgage at a rate more that 1.5% below current lending rates!
You need a few things:
Current bank statements
Current W2 forms
Current paystubs
...maybe other items. Your agent will let you know what you need. It definitely pays to keep good records. Bring more than you need, rather than finding out you forgot something. We brought four manila folders full of paperwork and only needed three or four individual records. Better to over-prepare than under.
Getting preapproved for mortgages at a few different benchmarks. It helps to see a few numbers because they can break it down for you what your monthly payments will be - including what you need to put aside for property taxes! Remember: you're going there to figure out if they're let you give them money. If they're rude or disrespectful to you, get your butt out of there. It's a sign of bad things to come.
We were in and out within half an hour, and got Chinese food for lunch to celebrate.
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And that's about it for now! I'll put up new articles as we progress. Up next should be fun: finding an agent who isn't a horrible, horrible person.
Anyone have any advice or questions? Please email me!
The End
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